IAG warns tough measures lie ahead with no recovery until 2023

British Airways owner IAG warned tough measures were on the way to combat the impact of the coronavirus pandemic as it warned passenger demand could take three years to recover.

The company on Thursday said it would defer the delivery of 68 aircraft as it forecast passenger demand not recovering before 2023. It also warned of a “significantly worse” second quarter as the full impact of Covid-19 lockdowns were felt.

BA last week announced it would be cutting 12,000 jobs in an early indication of the impact the crisis will have on the industry.

Chief executive Wille Walsh said he would delay his planned retirement until September 24 when Luis Gallego would succeed him.

IAG, which also owns Ireland's Aer Lingus and Spain's Iberia, suggested flights could resume in July "at the earliest, depending on the easing of lockdowns and travel restrictions around the world", and even then only at 50% capacity.

“However, we do not expect passenger demand to recover to the level of 2019 before 2023 at the earliest. This means group-wide restructuring is essential in order to get through the crisis and preserve an adequate level of liquidity," Walsh said.

IAG said its passenger capacity fell by 94% from late March as flights around the world were grounded, with limited passenger, repatriation and cargo-only flights operating.

The group also said it had €10bn of liquidity available to it at the end of Apri and had tapped government-backed support schemes in the UK and Spain.

IAG confirmed first quarter losses of €535m compared with a profit of €135m a year ago. Total operating losses including exceptional items relating to fuel and foreign currency hedges came to €1.8bn.

Total revenue fell 13.4% to €3.95bn as the pandemic crippled air travel globally. IAG said its airlines had been operating at a 94% lower passenger capacity since late March when most lockdowns were imposed around the world.

Capital spending plans were cut by €1.2bn, and weekly costs more than halved to €200m.

Hargreaves Lansdown analyst Sophie Lund-Yates said IAG's cuts were going to "get worse before they start to smooth out, because the sharp drop off in capacity happened when the quarter had already started".

"However the same can also be said for a number of the group’s cost saving plans, where we’re yet to see the benefits in the results. The net effect of these delays is yet to be determined, but one thing we do know is that we will be looking at a very different business on the other side of this storm.”