Shares in British Airways owner International Consolidated Airlines (IAG) traded flat at 207p as narrowing losses and a leaner cost base continued to be weighed against ongoing uncertainty over the restart of international travel.

In its results for the three months to 31 March, pre-tax losses narrowed by 35.4% to €1.22 billion even as revenue slumped 78.9% to €968 million year-on-year, with the airline group able to get cash operating costs down by another €10 million a week during the quarter to €175 million per week.

IAG operated at 19.6% passenger capacity compared to its 2019 level in the first three months of this year and plans to operate at 25% in the quarter to 30 June.


AJ Bell investment director Russ Mould said it’s ‘just not viable’ for airlines to operate at 25% of its previous capacity and added that it’s ‘like a jet plane running on a single engine’, leading to ‘mounting losses and debts for the company.’

Mould said despite IAG's pleas for an end to restrictions: ‘Unfortunately for IAG, governments have to judge the situation based on how they can keep the virus under control rather than the requirements of the aviation industry.’

IAG’s net debt stood at €11.5 billion at the end of March, an 18.5% increase compared to the same period a year ago. But the firm at least isn’t in danger of running out of money anytime soon, with cash of €8 billion available to it as at 31 March, up €2.1 billion from the end of December.

It also has committed and undrawn general and aircraft facilities of €2.5 billion, bringing total liquidity to €10.5 billion.


The two big questions for IAG from the market’s point of view are when will the world start flying again, and how soon can business travel recover.

There will be ‘some opening up’ of foreign travel on 17 May, prime minister Boris Johnson has promised, but the travel industry is still awaiting details of the Government’s traffic light system for travel destinations.

It’s likely however that moves from the Government are likely to fall short of what IAG chief executive Luis Gallego and his colleagues are calling for, i.e. travel corridors without restrictions between certain countries.

They’ve also demanded ‘affordable, simple and proportionate testing’ to replace quarantine and ‘costly, multi-layered testing’, as well as ‘well-staffed borders’ using contactless technology such as e-gates to ensure a ‘safe, smooth flow of people and frictionless travel’, and digital health passes to show proof of vaccination and negative Covid tests.


According to Third Bridge analyst Jack Winchester, consensus estimates predict IAG’s revenues will take seven years to recover and won’t reach 2019 levels again until 2026, with business travel ‘likely to be depressed for even longer.’

He said: ‘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.’

Those in the aviation industry have often called the London-New York route the ‘billion-dollar route’ for British Airways, as pre-pandemic that was the annual revenue the airline made on the route, mainly on account of demand for the more lucrative business class seats.

Winchester added that in the shorter term, a lot will hinge for IAG on whether the Government deems key markets like Spain as appropriate traffic light destinations.


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Issue Date: 07 May 2021