BA owner IAG banks on reopening of transatlantic routes to revive business

British Airways owner IAG is banking on the reopening of transatlantic travel to revive its business after warning it will lose another €3bn this year.

The group, which owns airlines including Iberia, Aer Lingus and Vueling, has racked up huge losses over the past 18 months while it has been shut out of its most lucrative north Atlantic market, in effect closed since early 2020.

But Luis Gallego, IAG’s chief executive, said Monday’s reopening of the US border to foreign nationals represents “a pivotal moment for our industry”.

IAG’s airlines plan to increase their flight schedules to 60 per cent of normal levels this quarter in response, up from the 40 per cent flown over the summer, which are typically the industry’s busiest months.

Looking further ahead, Gallego expects capacity on the north Atlantic routes to reach 100 per cent of pre-pandemic levels by next summer, which he said should allow IAG to finally return to profit.

Transatlantic bookings on BA have risen 167 per cent since the US announced the reopening of its borders in September, with planes next week expected to be nearly full as people take advantage of the easing in restrictions.

The airline’s boss Sean Doyle said the “very encouraging” bookings included early signs of a rebound in high-yielding business travellers, which are crucial to the business.

“We are seeing a strong recovery as markets open up,” Doyle said.

IAG has grown into an aviation powerhouse since it was formed through the merger of BA and Iberia a decade ago, and has built its business around its lucrative long-haul routes.

Analysts say that unlike low-cost rivals Ryanair and Wizz Air, which both returned to profit over the summer through flying across Europe, IAG will not be able to recover until its huge network is back up and running.

IAG’s recovery this year has also lagged behind fellow flag-carriers Lufthansa, which reported a small profit in the third quarter, and Air France, which guided to positive full-year earnings.

Unlike those two continental carriers, IAG was not offered a government bailout during the crisis, although it has received state-backed loans through BA.

IAG instead tapped the debt and equity markets to build up a firewall of cash to see it through the crisis, and had access to €10.6bn of liquidity by the end of September.

As a consequence, like much of the airline industry, the company now has a huge debt burden to service.

IAG reported €12.4bn in net debt by the end of September, up from €7.5bn at the end of 2019. Still, Gallego ruled out turning to shareholders for fresh capital unless “something extraordinary happens”.

The airline saw positive operating cash flow for the first time since the start of the pandemic in the third quarter, but still reported a €485m operating loss before exceptional items, compared with the €1.3bn lost the previous year.

The group forecasts a loss of approximately €3bn for the full year, slightly worse than analysts had forecast but an improvement on the €4.3bn lost last year.

As IAG’s losses mount, Gallego also warned Heathrow airport that he would reconsider his airlines’ footprints at the hub if it raises its landing fees post-pandemic.

The Civil Aviation Authority has blocked Heathrow’s efforts to nearly double the amount it charges airlines to land at the hub, but has proposed a 50 per cent increase over the next five years.

“If we are going to have an inefficient hub, it is going to be difficult to invest in that hub,” he said.

IAG shares reversed early losses to trade 3 per cent higher to 175.52p by early afternoon, but are still trading about two-thirds below their pre-pandemic levels.