The owner of British Airways will plunge to losses of €3 billion this year, despite getting its flying schedule back up to more than half the levels it was operating before the pandemic.
Luis Gallego, the chief executive of International Consolidated Airlines Group, talked yesterday of a “significant recovery underway” and called next week’s reopening of crucial transatlantic air routes “a pivotal moment for our industry”, but he conceded that IAG would lose more than €300 million in the present trading quarter.
Profits at the group, which includes British Airways, Iberia, Aer Lingus and Vueling, the short-haul carrier, have long depended on flying high-frequency services between London and New York and shifting high-fare-paying business and other passengers between Europe and the Americas. As a result, it has been hit hard by intercontinental travel restrictions during the Covid-19 outbreak and its pandemic losses top more than €10 billion.
For the third quarter of the year, the traditionally lucrative July-to-September season, IAG reported operating losses of €452 million. That extended its losses to €2.66 billion for the first nine months of 2021 and comes after operating losses of €7.42 billion in 2020.
IAG warned that continuing losses as it goes into this winter meant that it expected to be €3 billion in the red for 2021.
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Gallego, 52, who took over last year after the departure of Willie Walsh, the group’s longstanding chief executive, said: “There’s a significant recovery underway . . . The full reopening of the transatlantic travel corridor from Monday is a pivotal moment for our industry. Long-haul traffic has been a significant driver of revenue, with bookings recovering faster than short-haul as we head into the winter. Premium leisure is performing strongly at both Iberia and British Airways and there are early signs of a recovery in business travel.”
That prognosis and IAG’s insistence that it would not need to raise money from its shareholders helped the company’s share price to one of its better days of late, with IAG shares rising 6.1 per cent, or 10½p, to 180¼p to value the group at about £8.7 billion, albeit more than 60 per cent down on pre-pandemic levels.
IAG said that it was operating at 60 per cent of its 2019 levels in the present quarter, having operated at only 43 per cent in the summer and at a mere 20 per cent in the first six months of the year, when Europe was hit by a third wave of pandemic-driven lockdowns.
A full recovery is some way off, however, as IAG warned: “The group expects that it will take until at least 2023 for passenger demand to reach the levels of 2019.”
Passenger numbers this year have yet to catch up even on the collapse in traffic in 2020. In the summer quarter, IAG-owned airlines carried 15 million passengers. That took the number of people on its flights up to 23.5 million for the first nine months of 2021, compared with 27 million in the first three quarters of 2020.
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After BA’s controversial redundancy programme last year, IAG airlines are operating with 11,000, or 18 per cent, fewer employees than a year ago.
The company has racked up €12.3 billion of net debt during the coronavirus pandemic — 26 per cent higher than it was 12 months ago — but it has mortgaged many of its assets, with access to €10.6 billion of cash and overdraft facilities.
•IAG has threatened to cut investment in Heathrow amid a row over the airport’s plan to increase passenger charges. “If we are going to have an inefficient hub, it’s going to be difficult to invest in that hub,” Gallego told The Daily Telegraph. “And I think that’s going to be a problem for Heathrow, for the UK.”
Behind the story
The difference could hardly be more stark (Robert Lea writes). From July to September, airlines in the IAG stable carried 644,000 people between Europe and North America; in the same summer period in 2019, before the pandemic struck, the group ferried 3.56 million people between the continents.
Or, to put another way, by the end of this year IAG’s pandemic losses will be more than €10 billion; its 2019 financial year, before anyone had heard of Covid-19, brought annual profits of €3.2 billion.
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These figures also illustrate are the scale of the prize for IAG should the global recovery from the pandemic remain on course. Steve Gunning, the group’s finance director, who is leaving after three torrid years in the job, thinks that given a fair wind IAG will start to turn a profit again in the second quarter of next year, with normality becoming apparent in 2023.
IAG, and especially British Airways, its main cash cow, makes its money in the North Atlantic, charging hundreds of pounds a time for a crossing or thousands of pounds for more spacious cabins at the front of the aircraft. Those routes are all open again from next week.
“Demand for US travel is strong, especially in re-uniting families but in fact across all segments and load factors will be high [from Monday],” Sean Doyle, BA’s chief executive, said.
This is the airline’s bread-and-butter. It perhaps should be better judged on what it does at Gatwick. It has been making losses at Britain’s second airport for the past decade and has still to finalise what sort of service it will operate there. Finally making a profit at Gatwick would be the jam on top.
