Tests plea as owner of BA suffers £5.6bn loss
IAG boss says results reflect impact of Covid and urges better testing regime to give FTSE 100 group hope
The owner of British Airways has posted a €6.2 billion (£5.6 billion) loss in the first nine months of the year. Luis Gallego, the new chief executive of IAG, urged European governments to introduce a “reliable and affordable” testing regime to give the FTSE 100 group hope of a recovery. He said: “These results demonstrate the negative impact of Covid 19 on our business but they’re exacerbated by constantly changing government restrictions.” The loss is equivalent to almost €1 million an hour.
THE plight facing the owner of British Airways has been laid bare as it posted a €6.2bn (£5.6bn) loss in the first nine months of the year.
Luis Gallego, the new chief executive of IAG, urged governments across Europe to introduce a “reliable and affordable” testing regime to give the
FTSE 100 group hope of a recovery. He said: “These results demonstrate the negative impact of Covid 19 on our business but they’ re exacerbated by constantly changing government restrictions. This creates uncertainty for customers and makes it harder to plan our business effectively.”
IAG’S huge loss, equivalent to almost €1 man hour, comes as it prepares for the traditionally leaner winter months. In the corresponding nine months last year, IAG posted a €2.3bn pre-tax profit. Revenues fell from €17bn to €4.8bn.
Mr Gallego, who replaced long-term boss Willie Walsh in September, said: “We are calling on governments to adopt pre-departure testing using reliable and affordable tests with the option of postflight testing to release people from quarantine where they are arriving from countries with high infection rates.
“This would open routes, stimulate economies and get people travelling with confidence.
“When we open routes, there is pentup demand for travel. However, we continue to expect that it will take until at least 2023 for passenger demand to recover to 2019 levels.”
IAG’S results were sullied by exceptional items relating to coronavirus. “Overhedging” fuel and foreign currency, and locking in prices for higher
volumes, cost the business €1.6bn. The company embarked on a cost-cutting exercise earlier this year. About 10,000 jobs have been cut at British Airways in a restructuring that cost IAG €275m.
Mr Gallego, who previously ran BA’S sister airline Iberia, refused to be drawn on the prospect of further job cuts. He said: “We are trying to have a strong IAG for the future and for that we need to reduce our cost base. We don’t know what is going to happen. What we want is a flexible group that can adapt.
“We need to adjust all of our costs. This is not a question of how many people are going to leave the company.
“We need to do what is necessary to survive ... in this life you need to do things that you do not like.”
With some experts believing crucial routes to North America will not return to pre- Covid levels until 2026, fears remain over airlines’ cash reserves. IAG said it had €5bn in cash after raising €2.7bn from shareholders and tapping the Treasury’s Covid Corporate Financing Facility for £300m.
Cargo operations provided a rare bright spot. Revenue rose 11.2pc to €912m. IAG flew an additional 1,875 cargo flights in the three months to June and 1,115 to September, when it posted a record return.
Shares, which began the year above 250p, rose nearly 6pc to close at 96.4p.
Meanwhile, Air France-klm posted a net loss of €1.7bn for the three months to September, compared with a €363m profit in the same period a year earlier. as passenger numbers fell 70pc to 8.8m.
The first Gulf war, 9/11, Sars, the financial crash, the eruption of the Eyjafjallajökull volcano in Iceland – the airline industry flies from one downturn to the next. Yet, the current crop of bosses are in no doubt about where this one ranks. “The worst crisis in the industry’s history,” said newly appointed British Airways boss Sean Doyle last week.
The previous nadir was the global financial meltdown. But as Doyle pointed out, a quarterly loss of £309m going into 2009 almost looks tiny compared with the £711m of losses that BA chalked up in the second quarter of this year.
And yet even that figure was merely a taster of the pain to come: €6.2bn (£5.6bn) of pre-tax losses in the first nine months of the year at parent group IAG compared with a €2.3bn profit for the same period in 2019.
That’s a swing of €8.5bn, and there’s still another three months of the financial year to go. With most of its fleet grounded, and only a handful of planes taking to the skies each day, cash is dwindling at a rate of £205m a week, though less than management expected, one analyst was quick to point out. Finding positives in such times is a stretch. Perhaps that explains the 2pc bounce in IAG’S share price in early trading. There is little else to cheer when it can’t even produce profit guidance for the current financial year.
Yet, with a second lockdown sweeping across Europe, and talk even of a third wave next year, this almost certainly isn’t as bad as it gets.
IAG’S horrific results are a reminder of the quadruple whammy that the sector is facing in the form of competition, climate change, Covid and government incompetence.
Amid the current chaos, it is easy to forget that airlines faced a bleak future before Covid. With the price of a flight abroad now equivalent to what you would pay to travel across London in a black cab, airlines were already struggling to make money. A recordbreaking 23 carriers were permanently grounded in 2019.
Climate change has left airlines staring down the barrel of an existential crisis yet their sluggish adoption of clean technology compared to other heavily polluting corners of the economy such as the oil industry and carmakers, means they risk becoming environmental bogeymen. The costs of greening the fleet will be astronomical.
Still, despite the best efforts of campaigners to shame people into flying less, demand had at least held until the pandemic. But passenger numbers collapsed four fifths in the last quarter, and there is surely no prospect of a rebound with the world economy heading back into hibernation. At this rate, BA could be reduced to flying a couple of Sopwith Camels between London and Paris whenever there’s a tailwind.
IAG boss Luis Gallego isn’t letting the Government escape its share of the blame though. The airline’s current predicament has been exacerbated by “constantly changing restrictions,” he said.
And what about airport testing? Nine months into a global pandemic and there is still no proper regime in place. Gallego wants to see both pre-departure and post-flight testing. As he points out, there is plenty of “pent-up demand”.
Until then, expect more costcutting, despite a quarter of the workforce already being axed, and the possibility that IAG will have to raise more money next year, having only just squeezed £2.5bn out of shareholders earlier this month. Things will get a lot worse well before they get better.
‘At this rate, BA could be reduced to flying a couple of Sopwith Camels’
Deltic left to face the music
There can’t be many worse-hit industries than airlines. Pubs and restaurants are clinging on for dear life but at least there’s been some state support. Nightclubs have had none and with dance floors out of bounds since March, time is finally running out for Deltic, which has 54 venues around the country.
Having burned through £1m a month during the pandemic, the firm expects to be bust before Christmas unless it can find a saviour. But with a second lockdown approaching, there is little prospect of its doors opening for the foreseeable future so prospective investors fear throwing good money after bad. It will take the bravest of souls to step in.