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Market report: Low-flying British Airways owner IAG has new shock after dive in profit

Mark Shapland
British Airways have cancelled at least three days of fights in September due to union strike action: PA

FOR investors in British Airways owner IAG who thought the company hit rock bottom last week when it posted falling profits, today provided a nasty shock.

The airline, which has been hit by strikes, rising fuel costs, Brexit and a slowing global economy, has cut its capacity growth for the next three years.

IAG said it expects available seat kilometres, the industry measure of passenger capacity, to grow 3.4% a year between 2020 and 2022, down from a previous forecast of 6% growth a year for the 2019 to 2023 period.

The cut in capacity growth led to IAG also lowering its forecast for growth in earnings per share to 10%, compared with a previous estimate of 12% a year.

Chief executive Willie Walsh foreshadowed the move in October when he told this newspaper capacity growth in the industry would slow to 2%-3%.

He said on October 11: “I am clear growth in 2020 will be less than we had originally put out and that reflects the global conditions.”

Shares in IAG, which this week revealed it is buying Spain’s Air Europa for £860 million, were off 6.8p to 537p.

It was proving an ugly end to the week and the FTSE 100 lost 22.76 points to 7383.65.

Technology was in focus after Scottish Mortgage Investment Trust said it underperformed its benchmark in the first half of 2019 after its investment China tech giant Baidu failed to perform.

The firm added that it now believes the value in the tech sector lies with unquoted rather than listed companies. Brokers said this would send a shiver down investors’ spines, given the recent debacle with Neil Woodford.

Scottish said: “Our ability to invest in unquoted companies at scale is important to our future returns. Long-term risk taking is essential to economic and social progress and is continuing to migrate to private markets at an accelerating pace.” The shares fell 3p to 517p.

There was deep trouble for miner Base Resources, which has been forced to halt work at its mining project in Madagascar.

The company said it was at loggerheads with the government after farmers vandalised its campsite in April and were given suspended prison sentences.

The tussle is the latest example of increasingly frequent disputes between mining companies and host governments over fair terms. The shares were off 17%, or 2.3p, to 10p.

SMALL CAP

Rumour has it that Hurricane Energy has struck oil again and it could be time for investors to fill their boots.

It is understood that the firm hit oil at its Warwick Deep well two weeks ago and that the crude is of good quality.

The company has not yet confirmed and brokers urged caution as last month Barclays said the results at Warwick Deep had so far been disappointing.

The shares were up 0.1p to 41p.