British Airways-owner IAG reported on Friday its first annual profit since the pandemic and said earnings could jump almost 90% this year as business rebounds, but its shares dropped around 6% amid concerns about the group's debt.
The group's operating profit in 2022 was 1.22 billion euros ($1.29 billion) and overturned two years of COVID-driven losses. CEO Luis Gallego said IAG, which also owns Iberia, Vueling and Aer Lingus, was seeing robust forward bookings.
Net debt came down to 10.38 billion euros from 11.6 billion in 2021. But, IAG's debt remains higher than its market capitalisation and more then three times its EBIDTA, which analysts said has spooked the market.
IAG shares fell as much as 6.2%, making it one of the top losers on the index on Friday.
The group agreed on Thursday to pay 400 million euros ($424 million) to Spain's Globalia for the remaining 80% of Spain-based Air Europa it did not already own, a deal aimed at expanding its position in the Latin American market but that could also come with additional regulatory hurdles.
"The star of the show is a renewed deal for Air Europa. While terms are not as favourable as the group acquires a more indebted business, we still see this as the right strategic move for the company and accretive to medium-term earnings," said Alex Irving, an analyst at Bernstein Research.
IAG forecast 2023 operating profit in the range of 1.8 billion euros to 2.3 billion euros. That would still be well below pre-pandemic levels of 3.3 billion euros in 2019.
The shares have gained 30% since the beginning of the year as optimism grows about the appetite for travel despite some gloomy economic forecasts.
"We are transforming our businesses, with the intention of returning IAG to pre-COVID levels of profit within the next few years, through major initiatives to improve customer experience and operational performance," Gallego said.
Fares could come down along with unit costs once the group reaches 100% of 2019 capacity, Gallego added on a media call.
The Air Europa deal is expected to complete in 18 months, subject to regulatory approvals.