BA owner reports $5 billion first-half loss amid slower-than-expected return to service, cancels BA1

International Airlines Group (IAG), which owns British Airways, Aer Lingus and Iberia, among others, is planning to get €2.75 billion ($3.25 billion) to shore up its balance sheet after reporting a record €4.2 billion ($5 billion) operating loss in the first half of 2020. IAG reported passenger numbers fell by more than 98% in the second quarter, and Willie Walsh, the group's CEO, doesn't see passenger demand reaching pre-coronavirus levels until at least 2023.

"All IAG airlines made substantial losses," Walsh said. "Each airline has taken actions to adjust their business and reduce their cost base to reflect forecast demand in their markets."

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The €2.75 billion in equity raising has been secured and is expected to be finalized in August or September. The investment has been backed by IAG's largest stakeholder, Qatar Airways, which owns 25.1% of the group.

The company is also taking several cost-cutting measures across its member airlines, including fleet restructuring. British Airways will be forced to suspend a passenger-favorite route. Incoming IAG CEO Luis Gallego, who will take over the role when Walsh retires on Sept. 8, detailed that the single Airbus A318 in the BA fleet will be removed from service. Since the beginning of the coronavirus crisis, the route had been suspended, but the famed BA1 flight from London City (LCY) to New York (JFK) via Shannon, Ireland (SNN) with the all-business-class A318 will not return to service at all.

Related: 10 reasons British Airways 1 is unlike any other BA flight

As previously announced, British Airways is also retiring its fleet of Boeing 747 aircraft with immediate effect. The fleet was originally set to be retired in 2024. IAG CEO Willie Walsh noted that the aircraft's high business-class density configuration lead to the 747's early demise, as the group doesn't see business travel resuming in the same numbers in the near term. As such, the group also isn't planning on reconfiguring any aircraft in its fleet, given the change in demand for business flights.

BA is temporarily grounding four of its Airbus A380s and six Boeing 777 aircraft for up to three years until long-haul travel returns. Additionally, BA will see the early retirement of 13 narrow-body Airbus aircraft, as well as the temporary grounding of up to 18 narrow-body aircraft.

Related: Will the Airbus A380 fly again once travel resumes?

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Elsewhere in the IAG airlines, Iberia will retire 15 of its Airbus A340-600s, low-cost LEVEL will send six A320s to Vueling and Aer Lingus will continue to ground several A320 and A330 aircraft.

In addition to fleet moves, BA has reached an agreement with BALPA for changes to employment, which will see cabin crew contracts at Heathrow reduced from three to a single contract. The expected redundancies BA sees has increased from 12,000 to 13,000, and the carrier expects 1,400 employees to leave the company by Friday in voluntary schemes.

The return to service across IAG member airlines has been slower than the group predicted in its first-quarter earnings call in May. Capacity was down 95% in the second quarter, more than the anticipated 90%. Going forward, IAG expects capacity to be 74% down and 46% down in the third and fourth quarters, respectively. For the full year, IAG expects capacity to be down by 59%, higher than the group's May outlook of 50%.

Walsh detailed that the capacity across each airline in the group will be different. While the aviation industry has largely seen domestic and short-haul flights return to service, long-haul travel demand hasn't bounced back as quickly. For an airline like Vueling wherein the majority of service is domestic and short-haul within Europe, the carrier is ramping service back up quicker.

Meanwhile, for BA, which operates few domestic routes and relies, for the most part, on long-haul routes, its return to service will rely on passenger demand. Given entry restrictions — particularly in the U.S. — the demand for long-haul travel hasn't been there. Walsh said that long-haul demand has remained relatively stagnant since June, wherein demand for domestic flights and international short-haul have steadily been increasing.

Interestingly, Walsh alluded to the possibility of a "gradual" reopening of some U.S. cities for European and British travelers. Walsh said the entire country wouldn't be "open" or "closed" to non-nationals, but rather, certain markets would reopen.

"Our demand is not what we're actually seeing in our bookings because bookings are being suppressed by government restrictions," Walsh said.

Going forward, however, Walsh expects the Latin America and North America networks to "lag" behind other regions, given the virus' relevance in the region.

"The biggest challenge we face is to get people booking and flying again," incoming CEO Gallego said.