International Airlines Group (IAG) is expecting to return to profitability in the second quarter and produce operating results and operating cash flows that will be “significantly positive” for the rest of 2022. That will come after a loss-making first quarter and only without impacts from new Covid variants or geopolitical developments, that is. And the latter is still unknown, as the effects of the Russian invasion of Ukraine are unclear. IAG set for strong recovery from second quarter.
The war was briefly discussed at IAG’s 2021 results presentation on February 25, with Group CEO Luis Gallego announcing that his airlines will no longer use Russian airspace to Singapore and India following the UK government’s decision to block Aeroflot from operating to the country. “We can reroute all the routes and maintain the schedule”, Gallego said of the practical impact.
IAG reported a €2.933 billion loss after tax for 2021 compared to €-6.935 billion in 2020, in line with its guidance. The operating loss improved to €-2.765 billion from €-7.451 billion. Total revenues were €8.455 billion from €7.806 billion, of which €5.835 billion (+5.9 percent) from passengers and €1.673 billion from cargo (+28.1 percent). IAG said in November that it had reached the inflection point.
Despite the effects of Omicron in December, IAG reduced its Q4 loss after tax to €311 million from €-1.359 billion. The operating loss was €-278 million versus €-1.476 billion. EBITDA was €250 million, the first positive result since the start of the pandemic. Revenues improved to €3.534 billion from €1.301 billion in Q4 2020, of which €2.695 billion from passengers and €499 million from cargo. Compared to 2019, passenger revenues were still fifty percent down.
Aer Lingus hit by restrictions, Iberia again the best performer
By airline, Aer Lingus had the toughest year of all IAG airlines, hurt by severe travel restrictions in Ireland and the US that resulted in reduced capacity on the important Transatlantic market. Aer Lingus suffered a €338 million full-year loss compared to €563 million in 2020. Revenues were down twenty percent to €376 million.
Aer Lingus suffered from severe travel restrictions in Ireland and on its important US market. (Aer Lingus)
British Airways immediately benefitted from the reopening of the US on November 8 but then felt the effects of Omicron in December. Its full-year operating loss was £1.769 billion versus €4.379 billion in the previous year, with revenues down by six percent to €3.699 billion.
Iberia produced a €220 million full-year operating loss, a huge improvement from €-1.411 billion in 2020. Revenues improved 23 percent to €2.784 billion. It was profitable in Q4, producing a positive €82 million operating result. All segments of the Spanish carrier contributed positively and together produced a profit margin of eight percent.
Its low-cost sister Vueling also significantly reduced its losses to €220 million from €-875 million in 2020. Revenues were 78 percent higher to €1.011 billion.
Both BA and Iberia saw higher bookings for its Premium cabins, which it defines as First and Business Class but excludes Premium Economy. Premium Leisure recovered to some 85 percent with Iberia compared to 2019 levels, notably on its domestic and Latin America network. At British Airways, Premium leisure is back to sixty percent, with the Caribbean the strongest market. Premium Business is at forty percent with Iberia and twenty with BA but declined again since December and the outbreak of Omicron. Load factors and yields in the Premium cabins are similar to those of 2019. BA will roll out more Club Suites on its long-haul aircraft this year, growing them from 37 aircraft last year to 68 by the end of this year.
Full-year capacity will recover to on average 85 percent
In its forecast for 2022, Gallego said that all IAG airlines combined should restore capacity to an average of 85 percent. Long-haul low-cost LEVEL should grow to 105 percent, but that’s not representative as it only operates four aircraft. Vueling should be back to 95 percent, Aer Lingus to ninety, Iberia to 85, and British Airways to eighty percent, reflecting the missing Asian market.
BA long-haul wants to benefit from some US carriers taking out capacity on the Transatlantic. BA will restore its short-haul network in Q2 when it launched BA Euroflyer on March 29, which operates from London Gatwick.
Aer Lingus will prepare its Manchester base for peak-summer operations, while Iberia will ramp up domestic capacity and returns to the US (Washington and Dallas). Vueling will be back to 100 percent domestic capacity in Q2 and expands its international network thanks to adding slots at Paris Orly and London Gatwick. Iberia adds capacity to routes to South America on which some carriers have reduced services following their Chapter 11 restructurings.
Graphic showing how bookings have recovered since Omicron. (IAG)
Bookings in Spain are already at ninety percent of 2019 levels, with IAG’s long-haul and international short-haul both at eighty percent. The recovery should be helped by the lifting of travel restrictions as pre-departure Covid-tests in the UK since February 11 and no requirements anymore in Ireland and Spain. Testing one day before departure to the US could still have an effect on travel, so many airlines are lobbying to get this rule out of the window. Gallego isn’t counting on China, Hong Kong to contribute much to the 2022 results as long as they maintain their zero-Covid policy.
IAG expects deliveries of 25 aircraft
IAG plans for significant capital expenditures in 2022, mainly related to fleet renewal. Back in 2019, the plan was to spend €14.2 billion on Capex for the purchase of 143 aircraft between 2020-2022, but the group revised this to €7.0 billion and 75 aircraft when the Covid-crisis kicked in. The current plan sees Capex at €6.5 billion and seventy aircraft, but at €3.9 billion, investments will be significantly up from last year’s €0.7 billion.
IAG took delivery of 34 aircraft in 2020 and just eleven in 2021. Chief Financial Officer Steve Gunning, who will leave IAG in the next weeks, said that the 2022 delivery schedule includes fifteen widebodies (Airbus A50, Boeing 787-9) and ten narrowbodies (Airbus A320neo-family). “The widebodies come in to compensate for the 32 Boeing 747s that left BA and fifteen Airbus A340-600s with Iberia. We didn’t cancel the new aircraft, we need them to replenish capacity that we have taken out.” Gunning said that some of the aircraft could be sale and leasebacks.
International Airlines Group has a strong liquidity position of €12 billion, up from €8.1 billion twelve months earlier. Of this, €7.9 billion are cash and cash equivalents and €4.0 billion is in undrawn facilities. It secured £3.0 billion in new UK Export Facilities and some £2.0 billion in unsecured and convertible bonds, plus $785 million from a sustainability-linked EETC scheme. Gunnings said that IAG has no plans to raise more equity. The higher Capex means that IAG’s net debt will go up in 2022, having reduced it by €0.7 billion to €11.7 billion on December 31, with no debt maturities until 2026.
Discussions with Air Europa have failed
Gallego said that discussions with Air Europa about a take-over have failed. IAG and Air Europa-owner Globalia announced in December that they would terminate the original purchase plan from 2019 and explore alternatives until the end of January. “We have been working on that because we consider that it is the best for the Madrid hub, but the last information we have is that Air Europa is considering other alternatives from other European carriers. I think it is a mistake for Madrid, for Spain, and for the future of the South Atlantic traffic.”
Seasonality, the effects of Omicron on bookings, and higher operating costs from rebuilding capacity will result in a significant Q1 loss, but from Q2 the operating result and net cash flows should be positive and stay that for the rest of 2022, although IAG is giving no guidance for the full year.
Active as a journalist since 1987, with a background in newspapers, magazines, and a regional news station, Richard has been covering commercial aviation on a freelance basis since late 2016.
Richard is contributing to AirInsight since December 2018. He also writes for Airliner World, Aviation News, Piloot & Vliegtuig, and Luchtvaartnieuws Magazine. Twitter: @rschuur_aero.
