COVID-19: British Airways owner, IAG, record GBP 6.5BN loss
British Airways parent company, International Airlines Group (IAG), announced its steepest annual loss in history as ongoing global lockdown restrictions and travel bans forced the Anglo-Spanish international airline to ground most of its fleets.
IAG, which also owns Aer Lingus, and Iberia reported an annual loss of GBP 6.8BN in 2020, the equivalent of EUR 74BN and USD 9.5BN, compared to a profit of GBP 1.48BN in 2019.
The pandemic’s impact on travel caused revenue to plummet by 70% in the year to December from GBP 22.2BN to GBP 6.8BN, decimating IAG’s business model, which relies heavily on international travel and corporate customers paying business class rates.
IAG said it also recorded an operating loss of EUR 4.4BN before factoring in premium costs, albeit this fell in line with projections.
IAG noted it flew just one-third of its 2019 passenger capacity last year and said it does not expect passenger numbers to return to pre-pandemic levels until 2023. However, some industry forecasts paint a much darker picture, given that some regions of the global economy are expected to take longer to heal than others.
Despite the unpleasant results, IAG said its liquidity remains strong, and that liquidity is higher than during the onset of COVID-19. By December-end, the British Airways parent company’s liquidity was EUR 10.3BN, which included a capital increase of EUR 2.7BN capital increase and a GBP 2BN loan commitment from UK Export Finance (UKEF).
IAG shares (LON: IAG) have also jumped higher amid growing optimism over the global economic recovery outlook. IAG shares have advanced and are up by 7.75 points or 3.19% at 206.10 at the time of writing.
However, share prices remain significantly lower than their pre-pandemic values, reflecting the severity of damage COVID-19 has delivered to the aviation industry.
IAG Chief Executive Luis Gallego said that while our passenger revenues have plummeted, “we have taken effective action to preserve cash, boost liquidity and reduce our cost base.”
Mr Gallego added that its cargo business has prevented steeper declines and “helped make long-haul passenger flights viable” during the pandemic.
According to the company’s latest figures, cargo revenues surged by EUR 200M to EUR 1.3BN year-on-year.
However, compared to the loss recorded, IAG cargo revenue has had no measurable impact on total profits. The airline also said it would be unable to offer profit guidance for 2021 due to ongoing uncertainty over travel and demanded a comprehensive plan to “reopen the skies”.
The UK government is yet to confirm when summer holiday abroad can re-commence, though the Global Travel Taskforce is set to reveal plans this month as to how travel abroad could resume.
However, IAG and other aviation bodies are demanding digital health passes to ensure a swift and sustained return to international travel.
IAG demands UK government introduce digital health passes
IAG has urged the UK government to introduce a digital health pass to ensure a viable return for airports, airlines and tourism firms when international travel is unlocked.
UK-focused airlines got a boost in February after UK Prime Minister Boris Johnson unveiled plans to restore international travel from May 17th, which triggered a surge in holiday bookings for the summer.
However, uncertainty over what routes will be available when governments have imposed different travel rules has prompted IAG to demand a global approach.
The international airline said implementing a global approach with common testing standards should prevent the stop-start dynamic of the past year and ensure a smooth landing.
The airline group said introducing international common testing standards and digital health passes would help us return to travel safely and protect jobs by providing the aviation industry with much-needed certainty.
IAG’s flagship airline, British Airways, has axed 13,000 jobs and retired its Boeing 707 fleets to try to weather the effect of the pandemic.
Earlier this week, the International Air Transport Association (IATA) said it was developing digital health passes or COVID vaccine passports which would be made accessible via an app on iOS and Android.
The pass would verify whether the passenger has been tested or vaccinated and would operate on a modular system, meaning it can be adapted to connect with networks worldwide.
Transport Secretary Grant Shapps said the UK government would provide more detailed guidance on international travel plans on April 21st.
Europe’s passenger demand slumped more than other nations amid the crisis
According to the latest data on passenger capacity from Eurostat, Europe was particularly hard-hit by COVID-19 restrictions in the second half of 2020. European airlines recorded a more significant decrease in passenger revenues than other economies.
The coronavirus situation in Europe has been dire, and government measures introduced to curb the spreading of the virus have damaged consumer confidence in air travel.
While travel resumed briefly last summer, concerns over mutant strains and the reintroduction of travel restrictions thwarted travel demand.
According to Eurostat, total passenger capacity in Europe was down by 75.4% in the week to February 22nd, compared to the Middle East (57.1%), Africa (54%), North America (46.9%), South America (45.9%) and the Asia Pacific, with demand 40.9% lower.
Although plans for travel to resume this summer have triggered a UK holiday booking boom, the aviation industry could have a rough road ahead of them, given recovery is lagging in other parts of the world.
Restoring consumer confidence amid ongoing reports of COVID-19 strains will also prove to be a substantial challenge for the industry.
That said, many European airlines, including budget carrier Wizz Air are optimistic about their prospects post-COVID. Wizz Air said 2021 would be a “transition year”, after which they expect passenger demand to increase significantly.
A new budget airline is hoping to make its grand debut in 2021 despite the financial hardships that have beset the aviation industry.
New budget airline Breeze Airways to take to the skies
Brand new, low-cost airline, Breeze Airways is hoping to make its debut this year and eventually become the “world’s nicest airline”.
The US start-up airline was founded by aviation powerhouse and entrepreneur David Neeleman, who has previously helped set up airlines JetBlue and WestJet.
While Mr Neeleman has not confirmed a launch date for Breeze Airways, the company is expected to begin offering routes this year given that its website reads: “Welcome to Breeze Airways, a new airline scheduled for take-off in 2021!”