Financial Analysis of IAG Annual Report - Essay Sample

Introduction

The international Consolidated Airlines Group (IAG) brags of its status as the biggest holding company with most of its shares in a number of very large and influential airlines. Some of the prominent airlines that the IAG proudly have majority shares include the British Airways (10%) as well as the Iberia (100%) as well as the British Midland International (BMI). The IAG gained its registration as a company in the UK with its headquarters in the London Capital (International Airlines Group 2017). The IAG group has grown in limbs and bounds since its establishment in the year 2011 as a result of the merger between British Airways and Iberia Airways. Both of these two airways basted of massive worldwide presence with their operations felt in every corner of the globe.

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IAG is listed in the London stocks exchange in a dual dimension as (LSE" IAG) and the Madrid Stocks Exchange (BMAD: IAG). The other airline powerhouse that has a massive presence in the IAG Company is the Qatar Airways with boasts of up to 20.01% shares in the IAG; it remains the groups' single largest shareholder. Some of the international airlines that have subscribed to the IAG include Aer Lingus, Sun Air, BA CityFlyer, Vueling Airlines, and Level among others (International Airlines Group 2017). An examination into the annual finance report 2017 will point to the achievements that the IAG have covered as well as the risks as opportunities that lie ahead of it.

IAG Annual Report 2017

From the financial report above, it is clear that the IAG had an improved financial performance in 2017 from the performance of2016. The airline group scooped a whopping 1.8% increase in total revenue from what it had recorded in the year 2016. This probably was due to the increase in the number of airlines that subscribed to the airline and its activities. The impressive performance was buoyed by the fact that the company had very vibrant performance both in the Madrid and London stock exchanges which indicated that it was moving on an upward trajectory (International Airlines Group 2017). The upward trajectory was also experienced in the manner by which the airline group registered an increase in its total operating profits after the exceptional items. The increase in the profit after the exceptional items leaves huge operational fiances by up to 9.8% as compared to the year2026.

From the 2017 Finance Statement, the IAG Company reported an increase of up to 3.5% in the profits after tax. This means that the company had an increase in the total amount of profits for operation as well as the increase in shareholder index which increased by 3.0 %. The biggest beneficiary in the share index increase was the Qatar Airways which boast of up to 20% shares in the IAG Company (International Airlines Group 2017). From the IAG 2017 finance statement, it was clear that the company is on an upward performance index which puts it above its peers in the airline industry. The report revealed a steady decline in the interest-bearing long-term borrowings of up to 13%. The 2017 financial statement for the IAG group is a clear manifestation of how well the Airline group has risen over the years to remain one of the strongest airline groups in Europe. The 2017 financial statement for the IAG can be measured through other viable alternative means as shown below.

The above alternative financial measures take the longer routes to show the performance of the IAG group. The profit after tax before the deduction of the exceptional items indicates an increase of 12.7%. to stand at 2, 243 Euros. This performance marries with the profit of the adjusted shares earning which stands at 102.8 Euros which is above the previous one that stands at 90.2 Euros. From the above financial statement, the IAG is more liquid with very low debt to EBITDAR at 1.5 times, 0.3 lower than 2016 ratio that stood at 1.8 times (International Airlines Group 2017).

Key Partners

IAG has a number of airlines subscribed to its membership. These airlines play a vital role in the rise in its financial stability above its competitors. The contribution by every member as revealed in the 2017 report reveals that some of the well-known powerhouse airlines still lead is as far as the contribution is concerned.

The Aer Lingus takes the lead in as far as revenue contribution to the IAG group with up to 23%. The airline brags of contributing 23% revenue while British Airways make a contribution of 16%. Iberia contributes 12% which is an increment of 3% from 2916 with Vueling making 13% a major 6points increment (International Airlines Group 2017). These top four airlines, according to the 2017 report are the biggest contributors to the running and the standing of the airline group in Europe. It is apparent that these airline companies are well organized and have the biggest share in the IAG group according to the reports and findings. The mentioned companies contribute a total of 16% of the total revenue in the IAG group .Shares and Dividends

The IAG Company enjoys massively increased shares and dividends in its operational profits scope. For instance, there has been a steady increase in the operating profits from the year 2015 with 2, 335 Euros which grew to 2, 535 Euros in 2016 and eventually 3, 015 in 2017 (International Airlines Group 2017). The increased operating profits are a pointer to better fortunes ahead with an expected increase in the number of airline subscribers who are certain to see the group grow.

There also have been increased dividends among the various shareholders. There has been an increase from 2015 where the dividends stood at 20.0, 23.5 in 2016 and eventually 27.0 in 2017. This is a clear show of improving performance by the giant European Airline group which has been able to attract interest from other continents as well such as Qatar Airways.

Future Prospects

The IAG has promising future prospects in as far as growth in size and revenue is concerned. The company seeks to amass other leading airlines as part of its group in a move that will see it remain the single largest airline group in the globe. There was, for instance, an increase of 4% in the number of passengers using the airlines belonging to IAG. The number of passengers in 2016 stood at 100,000; this grew to 104,000 in 2017. On this indicative upward trajectory, there is a chance that the airline group will see at least a 5% increase of passengers to about 110,000 passengers in 2018 moving forward (International Airlines Group 2017).

The seat availability in the airlines grew tremendously from 298,000 to 306,000 showing 2.6% increment. This provides promising future prospects of up to 400,000 for the seats in the future. However, of a great confusion was the reduction of the aircraft in operation from 548 to 546, this is 0.4% reduction (International Airlines Group 2017). Such reductions do not augur well for the growth of the company which seeks to rope in large aircrafts such as Airbus and Boeing into its operations.

The IAG airline brags of a robust and improved cargo tone kilometer. In these cases, it is imminent that the amount of cargo that is transacted in the IAG airline companies continues to rise from 5,454 in 2016 to 5,762 in 207 (International Airlines Group 2017). This shows that the IAG companies enjoy a precedent advantage over its possible competitors.

The IAG has also changed its approach to engaging in massive online technology to advance its operations across the globe. The IAG has been abrasive in engaging digital technology and to manage flight booking as well as manning the flight gates. The organization also seeks to create a strong organizational balance to maintain its operation across the globe. With the increased shareholder management and management, IAG seeks to ensure that it maintains a perfect image in the airline industry as the biggest airline group globally as per the below data.

Future Risks

From the 2017 report, the IAG Company has a massive way of managing the workers in its service delivery attempts. However, from the report, there is an indication of the mismanagement risks due to the swelling number of staffs that continue to join its operations. For instance, the staff grew from 63,300in 2016 to 63,400 in 2017 (International Airlines Group 2017). This upsurge could mean that misconduct by one of the staffs threatens to dent the entire name of the organization which may lead to its eventual closure.

On financial terms, there is a danger that the new targets that are still linked to the EBITDAR along with the capital spending and equity cash flow could actually affect its operation for the next five years. The industries, from the reports, continue making returns below the cost of capital. Whereas the targets on the ambition that the organization has on itself and staffs. According to the finance report 2017, the IAG has modeled its portfolio to maximize value. The value maximization takes cognizant of the fact that the organization structure which is target-oriented other than the partnership approach (International Airlines Group 2017). This value approach may jitter its shareholders to an extent that some may withdraw their shares.

Conclusion

The IAG Company must be able to incorporate a multidimensional approach in the attempt to increase its scope of operation. The need the organization to rethink its ROIC, as well as leased operating margin will see it overcome all the financial challenges in the future. There is no need to increase the operating cost at the behest of the rest of the organization (International Airlines Group 2017).

References

International Airlines Group. 2017. Annual report and Accounts 2017. Iairgroup.com. accessed on 9th April 2019 from file:///C:/Users/David%20Nyawade/Downloads/Annual%20report%20and%20accounts%202017%20-%20interactive.pdf