IAG (LON:ICAG)’s share price has seen some decent gains in the past few weeks, up over 25% on optimism over an economic re-opening as the UK’s vaccine rollout gathers pace.
Airlines could certainly do with some good news with most of them operating at around 25% of capacity, and haemorrhaging cash at eye wateringly high levels, as they strive to keep a core number of their aircraft fleet serviceable, and ready to return to service, as restrictions start to get loosened.
The costs of the pandemic on British Airways owner IAG’s finances were no better illustrated when at the end of Q3 the airline revealed it had lost £5.1bn for the year to date, losing on average about £20m per day between January and September, while also shedding 10,000 jobs at BA and Aer Lingus at a cost of £250m.
As we come to the year end and the reintroduction of tighter restrictions throughout the winter months along with new travel restrictions this latest quarter hasn’t been much better. Having seen a 70% fall in passenger traffic in Q3, the numbers in Q4 saw capacity at 26.6% of that in 2019. For the whole of 2019 the airline flew 33.9% of its capacity compared to the previous year.
For Q4 the company posted an operating loss of €1.47bn, which when extrapolated out into the full year numbers, saw the airline slump to a loss, after tax and exceptional items of €6.9bn, or just over £6bn, with most of that loss coming in the form of €3bn on hedging losses on fuel, that was never delivered as the airline was unable to use it, and write-downs on the value of its fleet.
These included the early retirement of its British Airways Boeing (NYSE:BA) 747-400 fleet and Iberia Airbus Group SE (PA:AIR) A340-600’s, as well as the deferral of 68 aircraft.
For the year, passenger revenue fell 75.5% from €22.47bn to €5.5bn.
As we look ahead to the current year and with restrictions only likely to be eased sometime in Q2 21, there is still some way to go before passenger numbers return to any kind of normal, with IAG saying that capacity plans for Q1 are around 20% of 2019 levels, in essence meaning that Q1 is set to be worse than Q4.
All in all, while these numbers are undoubtedly bad, they aren’t surprising either. IAG’s biggest problem however is not a pickup in passengers on an economic re-opening. It will be able to benefit from the return of domestic passengers like its smaller peers EasyJet PLC (LON:EZJ) and Ryanair Holdings PLC (LON:RYA).
Its main problem will be getting the same levels of long-haul business travel that it had before the pandemic. This is where most big carriers make their money, and it is here that normal service may well take a little longer to return to the same levels they were in 2019.
Not surprisingly IAG hasn’t offered any guidance for 2021, citing the uncertain economic outlook, but are optimistic about a rebound due to pent up demand, however they have also called for international common testing standards and the introduction of digital health passports to encourage people back onto planes, and into the sky.
On the finances front, these have been bolstered with €3.4bn of additional funding secured in Q4 including a five year £2bn loan backed by the UK government, which has boosted its cash levels at the end of last year to €5.92bn, while its liquidity increased to €10.3bn, so it does have time on its side.
One thing seems certain, the “World’s Favourite Airline” is likely to be a much slimmed down version when we come out of the other side of the pandemic.
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