International Airlines Group’s (IAG) fortunes have been heavily influenced by the diffuse travel situation in various European countries. While British Airways and Aer Lingus suffered from restrictions and low demand, Iberia and Vueling have been able to reduce their losses in Q2 as restrictions in their countries were eased. IAG thrives on its Spanish subsidiaries.
On July 30, IAG reported a Q2 Group a €981 million loss after tax compared to €2.165 billion in the same period last year. The operating loss was €967 million (€2.182 billion), revenues were up by 77 percent to €1.244 billion. Passenger revenues were down by 72.3 percent to €1.141 billion, cargo revenues up by 25 percent to €769 million.
The January-June Group loss was €2.048 billion versus €3.813 billion last year, with an operating loss of €2.035 billion (€4.052 billion) and €2.212 billion in revenues, up 58.2 percent. Passengers carried was 8.1 million, down from 20.4 million last year.
Checking by airline, it becomes clear how diffuse the picture within IAG is.
British Airways reported a widening HY1 loss before exceptional items of €1.445 billion compared to €1.109 billion, although its operating loss improved to €1.325 billion from €2.469 billion. But revenues were only one-third of 2020-levels at €1.060 billion. Capacity remained limited as travel for UK citizens was limited under the government’s traffic-light system. After rising infections, Britons weren’t welcome in many European countries.
Aer Lingus suffered similarly because of restrictions by the Irish government. Its HY1 loss before exceptional items was €192 million compared to €189 million last year. Revenues dropped sharply to €65 million from €377 million.
By contrast, Iberia and Vueling benefitted from relaxations by the Spanish government on both domestic and international traffic. Iberia was able to rebuild its network in Latin America. While its €337 million loss before exceptional items is worse compared to €359 million last year, the operating loss was reduced to €330 million from €867 million. Yet, revenues were down to €929 million from €1.373 billion. Iberia’s Q2 revenues of €274 million were the best within IAG. These results include LEVEL.
Vueling only airline with positive cash flow in Q2
Low-cost subsidiary Vueling was the only IAG airline to produce positive cash flow in the second quarter, mainly from the domestic network. It reduced its HY1 loss to €204 million from €268 million, with the operating loss down to €195 million from €386 million. Revenues were lower again to €196 million from €313 million.
IAG’s capacity plan for the fourth quarter of 2021. (IAG)
IAG’s average capacity for the first half-year was just 20.8 percent, but it plans to increase this to 45 percent in Q3 and potentially 75 percent in Q4. Despite rising Covid-cases in the UK and Spain, demand has really picked up since the UK government lifted most restrictions for UK citizens on July 19. The opening up of borders to fully vaccinated the US and European citizens from August 2 is also expected to have a huge effect on the fortunes of British Airways. Since July 19, the carrier has seen a surge in bookings.
That’s why the five IAG airlines are preparing for a ramp-up of capacity. BA says it will have 92 percent of its long-haul fleet operationally ready, although 18 percent fewer aircraft compared to 2019 as it has retired the Boeing 747s and parked all A380s. Some A380s are expected to return to service. The short-haul fleet is 80 percent ready and operates at identical levels to 2019.
All cockpit and cabin crew will be ready, although BA has reduced numbers by 18 and 30 percent respectively. Some 18.000 staff remain furloughed.
The carrier will reposition capacity on the network to wherever travel restrictions are reduced. It plans to grow the number of daily flights by 190 to 340 in August compared to June and operate again out of Heathrow’s Terminal 3, which has been closed for some time.
Aer Lingus is 82 percent ready for the long-haul network with five percent fewer aircraft, although the A321LR is a new addition to the fleet that opens up new network options. The short-haul fleet has been reduced by 15 percent and is 83 percent operationally ready. The Irish carrier has 82 percent of cockpit crew and ‘enough’ cabin crew available.
In September, Aer Lingus will open a new base at Manchester, using a subsidiary airline that will have a UK Airline Operator Certificate. The Shannon crew base will be closed. Following the demise of Stobart Air, Aer Lingus together with BA CityLine and later Emerald will take over regional services.
Spanish carriers are fully ready to ramp up
As IAG thrives on its Spanish subsidiaries in Q2, Iberia and Vueling are also fully ready to operate extra in Q3 and Q4. Iberia’s long-haul fleet is 18 percent smaller and its short-haul fleet 15 percent. Vueling operates a 12 percent smaller fleet but will ramp up domestic capacity to over 2019 levels and launch 42 new routes. All pilots are available.
LEVEL has been operating very limited services out of Barcelona to Buenos Aires and more recently to San Francisco again. During the pandemic, it closed its base in Paris and discontinued the European airline that was operated out of Vienna. Although the current outlook is weak, IAG plans to rebuild LEVEL out of Barcelona with a fleet that could potentially grow to ten aircraft, CEO Luis Gallego said.
IAG ended June with €10.8 billion in liquidity, up from €8.1 billion in December. Net cash improved to €7.6 billion from €5.7 billion in December. In Q2, it raised €1.2 billion by issuing unsecured bonds and €825 million through convertible bonds, plus a new revolving credit facility of €1.755 billion.
Net debt also increased from €9.8 to €12.1 billion as it drew down €2.0 billion for BA from a UK Export Finance credit facility and €75 million for Aer Lingus from the Irish Strategic Investment Fund.
IAG’s weekly cash burn was €190 million in Q2 and is expected to rise to €270 million in Q3 as capacity resumes.