British Airways parent downbeat on summer as rivals see rebound

LONDON (BLOOMBERG) – British Airways parent IAG issued a downbeat assessment of its summer fortunes after rival Air France-KLM said it will return to profit this quarter.

IAG, which also owns Spain’s Iberia and Aer Lingus of Ireland, reported a second-quarter operating loss of 1.05 billion euros (S$1.69 billion), slightly worse than 1.01 billion euros forecast by analysts, and said it’s too early to provide a financial outlook for the rest of the year.

Chief executive officer Luis Gallego said a reopening of the UK border to American visitors is a positive development but that IAG will offer only 45 per cent of 2019 capacity this quarter, usually the busiest for European airlines. Air France-KLM earlier predicted a return to profit in the period after second-quarter earnings beat estimates, saying it may offer 70 per cent of its usual seats.

“We operate in different markets,” Mr Gallego said. “We have a strong presence in the North Atlantic and also the South Atlantic. We have flexibility to go up in case restrictions are lifted, and we see pent-up demand.”

Sanford C. Bernstein analyst Daniel Roeska said in a note that “further US reopening remains the most important catalyst” for IAG. He wrote that Air France-KLM’s operational recovery is ahead of expectations, with occupancy levels “looking quite respectable.”

British Airways relies on UK and US routes that have been slower to reopen following coronavirus lockdowns than those within continental Europe, while Iberia’s long-haul network is oriented toward South America, where flights are also restricted.

Mr Gallego said there are some bright spots, with Spanish domestic capacity exceeding 2019 levels and BA’s top leisure destinations also thriving, while cautioning that the focus right now remains on preserving cash and positioning for the recovery.

BA got a partial reprieve this week with news that fully vaccinated arrivals from the US and European Union need no longer self-isolate in England from Aug 2.

Though that could help spur a revival of trans-Atlantic travel, the Biden administration has maintained border closures and isn’t expected to ease them any time soon. The US last week advised citizens to avoid flying to Britain, citing the spread of the delta variant.

Frequently modified rules have also discouraged people from making short-haul journeys. Changes introduced this month finally opened up quarantine-free travel to more than 100 medium-risk locations for Britons with two Covid shots, boosting traffic to European holiday destinations.

Air France-KLM posted a second-quarter loss before interest, taxes, depreciation and amortization of 248 million euros.