International Airlines Group is bracing for three tough years and doesn't anticipate a return to 2019 trading conditions until 2023. Reporting an operating loss of €535 ($577 million) for the first quarter of 2020 on Thursday, group CEO Willie Walsh announced plans to defer deliveries of 68 new aircraft and to return more than 100 more to leasing groups in a bid to rebalance overall fleet capacity in the face of radically reduced demand.
The first-quarter loss marked a significant reversal of fortunes on the same period in 2019, when the group, which includes British Airways, Iberia, and Aer Lingus, achieved a profit of €135 million ($140 million). Most of the loss resulted from the almost complete collapse of traffic during the last three weeks of March in response to government travel restrictions due to the Covid-19 pandemic. Walsh warned that the second quarter will likely prove far worse, as schedules call for available seat kilometers to fall by as much as 95 percent in April and May.
Revenues in the first quarter fell only 6.5 percent down compared with the same period last year. IAG chief financial officer Steve Gunning explained that the group took an exceptional charge of €1.3 billion ($1.4 billion) to cover losses resulting from “over-hedging” of fuel in view of the significant dip in the airline’s Jet-A consumption.
This year, IAG carriers will reduce the number of new aircraft added to the combined fleet from 44 to 38. Next year, deliveries will fall from 42 to 15 and in 2022 from 57 to 22. It also plans to return 20 leased aircraft this year, followed by 96 more in 2021 and 2022.
Walsh stressed that IAG continues to consider the need for staffing reductions across the group, over and above the more than 12,000 layoffs already announced for British Airways. The statement appeared to head off speculation that the availability of Spanish government-backed loans worth around $1.1 billion might mean that the bulk of the job losses would affect staff in the UK, where the government has not offered support beyond its standard Covid-19 furlough scheme.
IAG’s current short-term planning assumes that passenger traffic for the remainder of 2020 will fall about 50 percent from last year's levels. Rival airline group Air France KLM, which also released first-quarter results on May 7, indicated that capacity levels for the second and third quarters could drop, respectively, by as much as 95 to 80 percent.
Walsh said that IAG does not plan to block middle seats as part of Covid-19 measures, arguing that social distancing cannot be achieved inside an airliner. He indicated that the group will instead support the wearing of masks by passengers and crew and make plans to disinfect aircraft interiors.