Cargo offers relief but the pain of lost passenger bookings is severe for British Airways

british airways

IAG, the parent company for British Airways, has today reported revenues of €968m for the first three months of 2021 – meaning total revenues are down from €4.6bn for the same period last year.

As a result, IAG has posted an operating loss of €1.07bn for the year – largely down to the result of the various COVID-19 restrictions that have been in place since March 2020.

Luis Gallego, IAG Chief Executive Officer, said: “We’re doing everything in our power to emerge in a stronger competitive position. We’re absolutely confident that a safe re-start to travel can happen as shown by the scientific data.

“We’re ready to fly, but government action is needed through four key measures: 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; and digital passes for testing and vaccination documentation to facilitate international travel.

Gallego continued: “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.”

Industry reaction

Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown shares her thoughts on today’s announcement.

British Airways owner IAG is still in emergency mode, battening down the hatches as global travel remains in limbo pushing bookings to a fraction of usual levels.

Passenger capacity was 19.6% of 2019 rates, and the situation isn’t going to ease any time soon with the plans for the second quarter creeping up only slightly to 25%. There was a bright spot of activity, to make up for lost passenger flights, IAG has ramped up cargo-only flights— 1,306 took to the skies, generating a record level for the first quarter of €350 million in revenue. The pivot to meet the demand for cargo transport has also meant more passengers can be taken for the ride, extending the long haul network despite overall drop in demand for tickets. It’s a good dose of medicine but only slightly eases the pain of an overall 88.4% drop in revenue from passenger flights and an operating loss of €1,135 million, before exceptional items.

Management has responded resiliently to the crisis by securing new funding and slashing costs. The group’s liquidity has increased to €10.5 billion, which does at least mean it’s in a stronger financial position to return to the skies when travel restrictions end.

IAG can do little but hold on tight through the continued turbulence and hope government  policy will allow it navigate out of the crisis. But there are still threatening grey skies ahead, not least with the spiralling of cases in India which could knock confidence in the travelling public. Although flight paths to re-opening routes are being unveiled by governments as vaccine rollouts ramp up, there is a risk a patchwork of new rules and regulations will emerge which could lead to a bumpy recovery ahead.

That’s why IAG is calling for fresh travel corridors to be set up, affordable testing to replace costly quarantine rules and digital vaccination and test result passes to be introduced. There is also concern that huge queues at transport hubs including Heathrow will also deter passengers from making bookings, and the airline highlights the need for contactless technology at borders to help reduce bottlenecks.

A lot is riding on the summer season, and although IAG looks like it will avoid a wash out with popular holiday destinations getting the green light, the lucrative long haul passenger business still remains elusive. Once holidays do resume, the airline gets on a smoother flight path, it will still be weighed down with its huge debt pile and regulatory red tape which comes with taking on government loans, which could slow it’s progress well into the future.