Travel recovery not expected until ‘at least’ 2023, BA owner warns

British Airways owner International Airlines Group suffered a half-year loss of more than €2 billion as it warned that capacity continues to be “adversely affected” by the Covid crisis.

IAG expects it will take until at least 2023 for passenger demand to reach pre-pandemic levels of 2019.

“As a result the group is actively involved in restructuring its cost base to adjust to significantly lower levels of demand, including actions to reduce fixed costs and to increase the variable proportion of the cost structure,” the company said.

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Passenger capacity in the second quarter to June 30 was just 21.9% of the equivalent 2019 level, up marginally on the 19.6% operated in the first three months of the year.

Current capacity plans for the peak summer three months quarter  are for around 45% of the 2019 level, “but remain uncertain and subject to ongoing review”.

IAG warned that it “continues to be adversely affected by the Covid-19 pandemic together with government restrictions and quarantine requirements”.

New three-year $1.755 billion secured revolving credit facility was concluded for Aer Lingus, BA and Iberia and which remains undrawn.

IAG cancelled a previous BA revolving credit facility scheduled to mature in June.

Employee costs for the six months fell by €617 million compared with 2020, linked mainly to staff cuts made in 2020, together with furlough and equivalent temporary cost reduction schemes.

Chief executive Luis Gallego said: “In the short term, our focus is on ensuring our operational readiness, so we have the flexibility to capitalise on an environment where there’s evidence of widespread pent-up demand when travel restrictions are lifted.

“This is reflected in Iberia’s and Vueling’s results. They were the best performers within the group in the second quarter reflecting stronger Latin American and Spanish domestic markets driven by fewer travel restrictions.

“We know that recovery will be uneven, but we’re ready to take advantage of a surge in air travel demand in line with increasing vaccination rates.”

He welcomed this week’s announcement that fully vaccinated travellers from amber countries in the EU and the US will no longer have to quarantine upon arrival in the UK from Monday.

“We see this as an important first step in fully re-opening the transatlantic travel corridor, “Gallego added.

“All our airlines continue to take significant actions to preserve their strength through the current pandemic and to position them for recovery.

“We continue to build resilience by preserving cash, boosting liquidity and reducing our cost base. At 30 June, the group’s liquidity was €10.2 billion with a significant improvement in operating cash flow compared to previous quarters.

“Longer term we’re preparing our business so that we can emerge stronger and more competitive in a structurally changed industry.

“For example, we’re accelerating the digitalisation of our business and our agreements with unions are enabling us to improve productivity and reduce our cost base while increasing the proportion of variable costs.

“We remain resolute in our climate commitments. Recently, British Airways successfully raised $785 million through an EETC financing linked to the airline’s sustainability targets.

“We have also been upgraded by the CDP (Carbon Disclosure Project) to A- in recognition of our comprehensive carbon management strategy. IAG is the only European airline group that has been awarded this high grade.”

Commenting on IAG’s results, Peter Knapp, a leading airline branding expert at Landor & Fitch, said: “The low-cost airlines are poised to flourish the moment leisure travel is once again unleashed. Unfortunately for IAG and British Airways, I don’t expect the same will be true for business travel. It therefore has no choice but to think about how it could reinvent itself.

“British Airways, under the helm of IAG, needs to use the pandemic as an opportunity to rediscover its roots and premium economy could be a good place to start. With people migrating from the front of the plane to the back, there’s still a market for travellers seeking that bit of luxury when they fly.

“Now is the time for British Airways to innovate and reinvent to stay relevant. If it doesn’t, its old mantra of being ‘the world’s favourite airline’ will slip even further away. The BA brand needs reinvigorating in order to drive reconsideration.”

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