The U.K. aviation industry faces further uncertainty with the Guardian reporting that EasyJet was the target of an “unsolicited preliminary…
IAG Signal ‘Meaningful Return’ to Service in July; Post Q1 Loss of $146 million
International Airlines Group (IAG), the parent company of British Airways, has announced a first-quarter (Q1) loss for 2020 of €535 million ($579 million). This compares with an operating profit of €135 million ($146 million) for the same period last year. Unsurprisingly the novel coronavirus (COVID-19) impacted the consortium’s operations for the period resulting in a 10.5% reduction in capacity from Q1 2019. Significant losses on fuel hedging derivatives and foreign exchange transactions were also cited as contributing factors to the loss.
Chief executive officer Willie Walsh said that the performance of the group for January and February was in line with the previous year, however, “March’s performance was severely affected by government travel restrictions due to the rapid spread of COVID-19 which significantly impacted demand.” Mr Walsh further added that: “We are taking all appropriate actions to preserve cash, reduce and defer both capital spending and operating costs and secure additional financing in order to strengthen and maintain our liquidity.”
IAG advised that going into the crisis they had cash and undrawn facilities totaling €9 billion ($9.74 billion). In addition, they have accessed the U.K. government’s Coronavirus Corporate Finance Facility (CCFF) and Spain’s Instituto de Crédito Oficial (‘ICO’) facility. The Guardian reported that the totals borrowed from the U.K. and Spanish governments were £300 million ($371 million) and £900 million ($1.1 billion), respectively.
Spanish airlines Iberia, Vueling and low-cost long-haul operator LEVEL are all under the IAG umbrella. British Airways has already proposed significant headcount reductions and it is anticipated that the workforce at IAG’s other airlines will also face cuts. The U.K. airline’s dependence on business travel passengers may result in a disproportionate amount of redundancies compared to the group’s other airlines. Mr Walsh signaled a ‘meaningful return’ to service in July but added that “Group-wide restructuring is essential in order to get through the crisis and preserve an adequate level of liquidity.”
Part of IAG’s strategy for recovery from the current crisis will be the continuation of the Atlantic Joint Business Agreement between British Airways, Iberia and Aer Lingus, American Airlines and Finnair. The agreement has been in place since 2010 and is subject to expiry this year which has resulted in an investigation by the U.K. Competition and Markets Authority (CMA). The investigation identified “potential competition concerns on routes between London and each of Boston, Chicago, Dallas, Miami and Philadelphia.”
In response to the CMA’s concerns, British Airways and American Airlines offered a proposed package of measures which included: releasing additional take-off and landing slots at London Heathrow or Gatwick airports to enable competitors to begin or increase non-stop flights between London and Boston, Dallas and Miami; and measures to support competing services on these routes as well as on the London to Chicago and London to Philadelphia routes, including access to connecting passengers on preferential terms.
The CMA has opened a consultation on the airlines’ proposals but has recognized that with the sudden impact of the coronavirus crisis the aviation landscape between the U.K. and U.S. has changed dramatically and that the concerns of the authority may now be minimized. Ann Pope, Senior Director, Antitrust at the CMA, advised: “We are acting now as the current commitments expire this year, but can review the agreement in the future if the market does not return to its pre-COVID state.”
A possible return to a pre-COVID state was addressed by Willie Walsh in IAG’s announcement of its Q1 results, saying they do “not expect passenger demand to recover to the level of 2019 before 2023 at the earliest.” Mr Walsh, who will now leave the Group in September after delaying his retirement due to the crisis, concluded on an optimistic note by saying that IAG “intend to come out of the crisis as a stronger Group.”
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