The owner of British Airways is set to soar back into the black this year and buoyant Easter and summer forward bookings will prompt the company to embark on a €3.9 billion spending spree to buy new aircraft to replace its ageing, polluting fleet.
With brighter skies on the horizon, Luis Gallego, 53, who took over as chief executive of International Consolidated Airlines Group during the pandemic, promised that the group would do things differently after a decade-long decline in service standards and poor industrial relations under Willie Walsh, 60, his predecessor.
The group, which is made up of BA, Aer Lingus and the Spanish airlines Iberia and Vueling, reported losses of €2.76 billion for 2021, a better outcome than had been forecast and a far stronger result than the disastrous €7.45 billion dive into the red in 2020.
Change was coming, Gallego promised. “A strong recovery is under way,” he said. “We know we must do things differently.”
The group flew schedules in the final quarter of last year at 58 per cent of pre-pandemic levels. At present, it is flying a schedule at 65 per cent of 2019 capacity but expects that by the end of the year the level as a whole will be at 85 per cent of pre-pandemic numbers.
IAG expects a slow start to 2022 to produce a “significant” operating loss in the first quarter, but — with caveats about the impact of any new Covid-19 variants and the fallout from the Russian invasion of Ukraine — it said that it “expects its operating result to be profitable from quarter two, leading both operating profit and net cashflows from operating activities to be significantly positive for the year”.
Stephen Furlong, an analyst at Davy, the broker, forecast that IAG would make profits this year of €292 million, but he warned that the company’s efforts to unshackle itself of its €11.6 billion debt would be tough.
The suspension of flights into and over Russian airspace will mean that BA’s pre-pandemic, three-times-daily service to Moscow will not restart any time soon. It also will delay the rebuilding of BA’s services to Hong Kong, Shanghai, Beijing, Tokyo and Seoul and will mean longer journey times to India and Singapore.
The situation will mean that the airline will double-down on rebuilding its most lucrative services to the United States, Sean Doyle, 50, BA’s chief executive, indicated.
With €1 billion of cash inflows in the second half of last year, the group will now unlock the coffers. Last year it spent only €700 million on capital expenditure, well under half what it expected to. Now, with a backlog of orders for 55 short-haul aircraft and 49 long-haul jets from Airbus and Boeing, the giant aerospace manufacturers, IAG said that it would spend €3.9 billion to catch up on delayed deliveries.
In addition to ten Airbus short-haul aircraft, this year BA will take delivery of 15 fuel-efficient Boeing 787 and Airbus A350 jets, replacing 32 older, gas-guzzling Boeing 747s that the carrier has retired. Across its airlines, IAG operates a total of more than 500 aircraft.
Gallego said that the star of the show had been Iberia, which turned a profit in the Christmas quarter as Latin American and Spanish markets opened earlier than elsewhere. Business-class cabins generally have suffered from poor demand, but IAG reported a strong surge in “premium leisure” bookings, in which wealthier private travellers pay a higher fare for a bit more space.
“Bookings have remained strong for Easter and summer 2022, having picked up in the new year,” Gallego said. “We expect a robust summer.”
During 2021 the company made savings of nearly £250 million on the payroll after Walsh controversially ordered the laying off of 10,000 BA workers only weeks after the pandemic struck.
Steve Gunning, 54, IAG’s finance director, said that the group’s fuel bill was 60 per cent hedged for the year and that he was not fazed by an oil price of $100 a barrel because the last time that kerosene was that price, the group still made profits at a margin of more than 14 per cent.