British Airways owner plans to resume flights in July but warns demand won’t recover for 3 years

May 7, 2020

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British Airways expects to resume part of its operations as of July. International Airlines Group (IAG), the owner of British Airways, Aer Lingus and Iberia, among others, said that it expects its airlines to take a “meaningful return to service” in July at the earliest.

The resumption of flights by July depends on the easing of lockdown and travel restrictions, IAG CEO Willie Walsh said in the company’s first-quarter earnings call on Thursday. By the third-quarter, IAG expects to be operating about 45% of capacity compared to the year prior, before ramping operations up to 70% capacity in the fourth quarter. Overall, for the full year, IAG expects to have operated about 50% capacity compared to 2019.

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(Image courtesy IAG)

“At this stage, we do not expect the level of passenger demand that we saw in 2019 to recover before 2023,” Walsh said on the call, noting that the group’s outline for return to service is “highly uncertain” and subject to travel restrictions.

On Thursday, IAG said that passenger capacity at its airlines had been reduced by 94% from late March. In the first quarter, IAG reported £1.47 billion (about $1.8 billion) in losses, which included a £1.14 billion ($1.4 billion) charge for fuel hedges. The group also reported £467 million ($481 million) in operating loss, down from £118 million ($127 million) profit in 2019.

Part of the challenge for IAG — and airlines around the globe — is convincing passengers that it’s safe to fly. Historically, in response to crises, airlines have implemented pricing stimulation in order to offer travelers enticing airfare to get them on planes. However, as Walsh noted, the coronavirus crisis has been unprecedented, and it’s still too early to say what the consumer attitude will be towards flying in the third quarter and whether or not the group will introduce pricing stimulation measures.

Walsh said the group is focusing on restructuring itself to come out of the coronavirus crisis strong, but smaller. Part of the group’s cash-conserving measures in the near-term include the deferral 68 aircraft deliveries between 2020 and 2022 — mostly short-haul aircraft, though also including some long-haul deferrals. In addition, it’s looking at aircraft already in its fleet. Of the 31 747s in the BA fleet, it’s accelerating the retirement of two of them to finalise in 2020.

In addition, IAG is considering further fleet reduction, including the potential early retirement of Boeing 747s and A340s. The group still has 15 A340s in its fleet — the majority of which are owned by Iberia.

In the case of an accelerated retirement of 747s and A340s, IAG would look to take advantage of the more fuel-efficient twin-engine aircraft that are now increasing in numbers in its fleet. There was no mention of the group’s plans for the remaining Airbus A380s in BA’s fleet.

Related: Where is British Airways parking its planes during the coronavirus outbreak?

IAG has relied mainly on fuel-efficient A350 and 787 aircraft to operate its cargo operations and repatriation flights during the coronavirus crisis. Going forward, Walsh said that the group plans to take advantage of any cargo opportunity that arises in the short- and medium-term.

For the group to resume flying, it will have to take the approximate 440 aircraft that it has grounded out of storage. Walsh said the cost of returning those grounded aircraft to service is less than 10 million euro. The number of aircraft it takes out of grounding at any one time will be dependent on the ramp-up of IAG’s service.

Last week, IAG made news when it and British Airways announced that the group was set to make up to 12,000 BA staff redundant — a move that Walsh declined to discuss further on Thursday’s earnings call. BA also told staff last week that its Gatwick operations might not reopen after the coronavirus crisis passes

Related: British Airways set to make up to 12,000 employees redundant amid coronavirus restructuring

“I would like to see us continuing to have a presence at Gatwick,” Walsh said on Thursday, noting that it was a personal opinion and nothing would be made official until after the company’s discussions with staff.

Interestingly, the group isn’t ruling out the option to generate cash from BA’s Avios currency.

“A presale of Avios points is something that’s been done in the past and we would consider in the future,” IAG CFO Steve Gunning said on Thursday’s earnings call. “It’s one of the plays we could go to if we wanted to raise liquidity.”

Walsh noted that he welcomed the decision of London Heathrow’s decision to implement coronavirus screening, such as temperature checks. He also noted that the group supports passengers who wish to cover their face with masks or other measures, though at this time, it isn’t requiring that passengers wear face masks when travelling, as other airlines around the world are doing.

And as far as what IAG aircraft will look like when flying resumes on a large scale, don’t expect there to be an empty middle seat.

“I don’t see a situation where we will be leaving a middle seat empty,” Walsh said. “I see a normal return to service where all seats are for sale,” noting that he didn’t feel it was possible to social distance on an airplane.

Related: The hidden costs of saying goodbye to the middle seat

The coronavirus crisis has prolonged Walsh’s stay at the helm of IAG. In January, Walsh announced that he was set to step down as CEO of IAG as of March 26 before fully retiring on June 30. However, the crisis has forced him to stay on board longer. Now, he plans to retire Sept. 24, 2020, handing the role over to Luis Gallego, Iberia’s current CEO.

Walsh noted that the company’s focus is on restructuring, saying that for airlines that don’t accept that they need to restructure will suffer, noting that he expects to see more failures in the future.

Already, the coronavirus crisis has forced airlines to shutter service around the world. In the U.K, regional carrier Flybe collapsed in March, while in Australia, Virgin Australia entered administration.

Featured photo by by Steve Parsons/PA Images via Getty Images.

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