February 27, 2021 | aviation

British Airways owner IAG posts €7.4bn loss and offers no profit outlook for 2021

Calls for digital health passes as ‘airline industry will be wearing the scars of this pandemic for years to come’


British Airways owner IAG slumped to a €7.4 billion ($8.9bn) pre-tax loss in 2020 after the Covid-19 pandemic paralysed air travel across the globe with the company offering no profit outlook for 2021.

The huge operating loss, which included €3bn in early flight retirements, restructuring charges and fuel and currency hedges, followed a €2.6bn profit in 2019.

Passenger revenues slumped 76 per cent to €5.5bn, with IAG chief executive Luis Gallego calling for digital health passes to reopen routes.

Mr Gallego said the results, representing IAG’s first annual loss in almost a decade, 'reflect the serious impact that Covid-19 has had on our business'.

“The group continues to reduce its cost base and increase the proportion of variable costs to better match market demand,' he said.

'We know there is pent-up demand for travel and people want to fly. Vaccinations are progressing well and global infections are going in the right direction. We're calling for international common testing standards and the introduction of digital health passes to reopen our skies safely.'

IAG, whose portfolio includes Spanish carrier Iberia and Ireland's Aer Lingus, is undergoing a painful cost-cutting drive that includes cutting thousands of jobs.

The company said it has already axed the 'majority' of 10,000 jobs – a quarter of the carrier's workforce – at British Airways, as well as 500 positions at Aer Lingus.

The global aviation industry came to a standstill at the start of pandemic last year with airlines forced to suspend flights, cut jobs and seek government aid.

“The past 12 months has been perhaps the most difficult and testing period in the history of aviation,” said Adam Vettese, analyst at multi-asset investment platform eToro.

“British Airways parent IAG’s results are a testament to that, with revenue plunging, passenger numbers a fraction of what they were and debt spiralling.”

IAG liquidity stood at €10.3bn, including a €2.7bn capital increase and a €2bn loan commitment agreed in December, while non-fuel costs sank 37.1 per cent last year.

“We have taken effective action to preserve cash, boost liquidity and reduce our cost base. Despite this crisis, our liquidity remains strong,' Mr Gallego said.

Earlier this week, BA boosted its cash reserves by delaying £450 million ($627m) in pension payments in a bid to conserve funds.

IAG said BA would draw down a £2bn government-backed loan agreement with a syndicate of banks by the end of this month. The five-year plan unveiled in December would be partially guaranteed by government agency UK Export Finance.

British carriers received some respite earlier this week when Prime Minister Boris Johnson said international travel could reopen in mid-May.

Due to uncertainty over the pandemic, IAG did not provide any profit guidance for 2021, highlighting the challenges facing Mr Gallego and aviation industry chiefs who are pinning their hopes on a rapid vaccination drive.

“The aviation industry stands with governments in putting public health at the top of the agenda. Getting people travelling again will require a clear roadmap for unwinding current restrictions when the time is right,” Mr Gallego said.

The outlook for 2021 has deteriorated since Decembe after several governments, including the UK’s, imposed stricter travel restrictions to curb new variants of the Covid-19 virus.

Airlines' cash burn is expected to increase to $75bn-$95bn this year, the International Air Transport Association said, up from the $48bn projected in December.

The industry, which was expected to break even by the fourth quarter of 2021, is now on track to continue burning through its cash reserves until the end of the year, Iata said.

With the pace of vaccinations picking up in many countries, Mr Vettese said there is talk of a tentative reopening of the skies for those who have had a Covid-19 shot.

“However, even if flights return by summer, as is hoped, IAG and the wider airline industry will be wearing the scars of this pandemic for years to come,' he said.

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