IAG first-quarter losses top €1bn

British Airways owner IAG reported a doubling in first-quarter losses to more than €1.1 billion.

Passenger capacity in the period was less than 20% of equivalent levels in the same period in 2019.

Current passenger capacity plans for the current quarter are for around 25% of 2019 capacity, “but remain uncertain and subject to review”.

The group warned that it continues to be affected by the Covid-19 pandemic together with government restrictions and quarantine requirements.

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 IAG is not providing profit guidance for 2021 “given the uncertainty over the timing of the lifting of government travel restrictions and the continued impact and duration of Covid-19”.

IAG chief executive said Luis Gallego said: “We’re absolutely confident that a safe re-start to travel can happen as shown by the scientific data.”

He called for government action in four key areas:

  • Travel corridors without restrictions between countries with successful vaccination rollouts and effective testing such us the UK and the US.
  • Affordable, simple and proportionate testing to replace quarantine and costly, multi-layered testing.
  • Well-staffed borders using contactless technology including e-gates to ensure a safe, smooth flow of people and frictionless travel.
  • Digital passes for testing and vaccination documentation to facilitate international travel.

Gallego said: “These measures will enable a safe re-opening of our skies.

“Travel underpins a global industry that supports 13 million jobs in Europe alone.

“There’s a high level of pent-up demand and aviation will play a critical role in reconnecting people and getting economies back up and running again.”

Gallego reported an operating loss of €1,135 million before exceptional items in the three months to March 31 compared to an operating loss of €535 million in the same period last year.

He added: “We’ve acted decisively to build resilience by boosting liquidity and reducing our cost base. At March 31, the group’s liquidity increased to €10.5 billion which demonstrates IAG’s good access to capital markets.

“Cargo has enabled us to operate a more extensive passenger long-haul network. In addition, we operated 1,306 cargo-only flights and generated €350 million in revenue, a record for quarter 1.

“We’re taking all necessary actions to ensure the financial health of our business for the long-term, including last year’s successful €2.7 billion capital increase, and remain focused on reducing our cost base and increasing efficiencies.”

He added: “Despite the challenges posed by the current pandemic, our focus on the safety of our people and customers remains paramount alongside our climate commitments.

“Our pledge to powering 10% of our flights with sustainable aviation fuel by 2030 shows that we will not back down from our ambition to lead aviation’s efforts to reduce its carbon footprint.

“We’re doing everything in our power to emerge in a stronger competitive position.”

Jack Winchester, analyst at City research firm Third Bridge, said: “IAG’s seating capacity over the last three months was just one fifth of 2019 levels, and it expects to increase that to 25% of 2019 levels in Q2. This will increase cash costs per week from €175 million to €200 million.

“The two big questions for IAG are when will the world start flying again, and how soon can business travel recover.  Consensus estimates predict IAG’s revenues won’t reach 2019 levels again until 2026 and business travel is likely to be depressed for even longer.

“IAG’s fortunes are especially tied to a very profitable US-UK business travel market and this is going to suffer so long as cash conscious companies make Zoom calls central to how they do business.

“In the shorter term, a lot will hinge on what the UK government deems as appropriate ‘traffic light’ designations in key markets such as Spain.

“There is also the issue of Covid-19 testing with our experts noting many consumers want to get back on planes but feel deterred by exorbitant Covid-19 testing costs.

“British Airways is offering discounted tests for £33 in an effort to tempt more passengers to fly again, but this discount effectively comes out of IAG’s pocket.

“While IAG’s revenues for the past three months came in below expectations, it is clear that the airline has had no difficulty raising cash from investors. Including a €1.2 billion bond issuance which was heavily subscribed, the company raised almost €6 billion in the first quarter of the year.”

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