TAP Q1 results may not be as good as expected

The first quarter of 2024 may not be as good as expected for Portuguese airline TAP in comparison to one of its potential buyers, International Consolidated Airlines Group (IAG), which released its first quarter 2024 results on Friday, showing a surprise operational profit of €68 million. This was a huge jump from the €9 million seen in the first quarter of 2023.

IAG owns several notable airlines, such as British Airways, Aer Lingus, Vueling and Iberia.  IAG, along with the Lufthansa Group (SWISS, Austrian Airlines, Brussels Airlines and Eurowings) and Air France-KLM have also shown an interest in buying a controlling share in the Portuguese national carrier.

Given the trends of volatile prices in jet fuel, and post-pandemic demand issues faced by the large airlines, it had been feared that the IAG Group would face financial difficulties for Q1 according to Rui Quadros, an aviation sector specialist and professor at ISEC.

European airline group Air France-KLM (AF-KL) also posted its Q1 2024 results at the end of April, reporting an increase in revenue, but a loss in operating results of €489 million, higher than expected.

However, the group did up capacity by 4.5% compared to last year, the increase being mainly driven by the group’s low-cost carrier, Transavia (TO). This higher capacity allowed the group to carry 20.9 million passengers, which was 6.2% higher than in Q1 2023.

Lufthansa too, which had expected losses in Q1 of 2024, did better than expected. Group revenue increases were up 5% to €7.4Bn while passenger numbers rose to €24 million in Q1. However, strikes cost the German airline €350 million, and adjusted EBITDA was €-849 million.

As for TAP, its CEO Luís Rodrigues said at the end of last year that he expected the airline to deliver strong results in 2024, although with more moderate revenue growth, which should maintain its attractiveness to potential buyers.

But taking on board recent increases in salaries and other necessary operational adjustments, the airline could post losses and may just about break even in the thin line between costs and revenues.

Rui Quadros said that TAP was in an “unknown” situation in terms of results. On the one hand, TAP’s results for the last quarter of 2023 saw some surprise losses when Q4 is usually profitable and that wasn’t “a good sign for the following quarter”.

On the other hand, the fact that Easter fell earlier this year in March, rather than in April as was the case in 2023, certainly benefitted the airline’s accounts and could likely mean less losses.

TAP closed 2023 overall with historically high profits of €177.3 million, an increase of 170% on 2022. However, in the last quarter of last year, the airline suffered negative results impacted by an increase of 120% in staff costs.

The variation is explained by an upwards review in salary cuts imposed during the airline’s restructuring and new company agreements that foresee pay updates.

The question remains, however, that if TAP does register losses for Q1 of 2024, will the scramble to buy a controlling share in the airline from the large airline conglomerates wane?

None of the experts consulted by business daily Negócios thought so. “Any losses won’t change our opinion. Companies have an appetite for consolidation”, said Andrew Lobbenberg, an analyst for Barclays, while Rui Quadros said that nothing would affect the drive toward TAP’s privatisation. How much of the company will be privatised remains the million dollar question!

That said, Rui Quadros reminded Negócios that the first quarter of the year is always weak for airlines and that from April “we’re going into the IATA (International Air Transport Association) summer which could balance things out.

Pedro Castro, an analyst from SkyExpert, initially shared the same opinion in thinking it would be difficult for the IAG Group, which presented its Q1 results on Friday, to escape the lacklustre results of competitors Air-France-KLM and Lufthansa, both of  which had more revenues but also more costs; or Iberia, for example, which started off the year with baggage handling strikes, which obviously undermined Q1 results.

In the end, the IAG Group surprised despite the several challenges; perhaps TAP Portugal will be lucky too.