FTSE 100: British Airways owner IAG cuts capacity outlook despite returning to profit

·3 min read
British Airways
Shares in the FTSE 100 company IAG, which owns British Airways, jumped in early trade on Friday. Photo: Horacio Villalobos/Corbis via Getty

British Airways (BA) owner International Consolidated Airlines (IAG.L) slashed its capacity forecast despite returning to profit for the first time since the outbreak of the coronavirus pandemic.

The FTSE 100 (^FTSE) company expects passenger capacity to be around 80% in the third quarter, and around 85% in Q4, a reduction of 5% for the second half due to disruption at Heathrow for BA.

In July, Heathrow introduced a cap on the number of passengers allowed to depart from the airport over the summer, allowing for just 100,000 daily departures until September.

It came as widespread staff shortages following the pandemic, exacerbated by strike actions, sparked delays and cancellations across the sector, leading to a bitter blame game between carriers and airports.

IAG posted an operating profit for the second quarter of €293m ($300m, £245m) in the six months to 30 June, compared with an operating loss of €967m in the same period of 2021.

Revenues recovered to 88% of 2019 levels, nearly a fivefold jump compared to a year ago, it said.

IAG said the "challenging operational environment at Heathrow" meant BA's capacity was limited to 69.1% of pre-COVID levels between April and June. That compares with 57.4% in the previous three months.

BA, which has cancelled tens of thousands of flights this summer, plans to increase its capacity to around 75% between July and October.

Read more: Heathrow reports £321m loss but insists passenger cap is improving services

The company, which also owns Aer Lingus and Iberia, said its overall passenger capacity had hit 78% of 2019 levels in the second quarter of the year, and it expects that to grow steadily through the year.

Despite lower capacity, IAG chief executive Luis Gallego said "there are no signs of weakness in demand", with profits expected to be higher in the next quarter and in the full year.

"Our industry continues to face historic challenges due to the unprecedented scaling up in operations, especially in the UK where the operational challenges of Heathrow Airport have been acute," Gallego said.

"In the second quarter we returned to profit for the first time since the start of the pandemic following a strong recovery in demand across all our airlines,"Gallego added. "This result supports our outlook for a full-year operating profit."

Shares ticked up as much as 1.9% after the opening bell on Friday in London, down 0.2% at the time of writing.

However, despite the pressure the move to limit flight numbers by the industry appear to have stabilised the travel chaos that has wreaked havoc in Europe's travel industry.

London's Heathrow and lower cost airlines such as easyJet (EZJ.L) and Wizz Air (WIZZ.L) have all reported improving operations since the introduction of the limit.

Earlier this week, Heathrow insisted its decision to cap passenger numbers to 100,000 a day earlier in July has delivered a "material improvement" in punctuality and baggage handling.

Russ Mould, investment director at AJ Bell, said: "British Airways owner International Consolidated Airlines may have returned to profit for the first time since the start of the pandemic but that doesn’t mean the turbulence is over for the business.

Read more: Strike forces Lufthansa to cancel over 1,000 flights

"The threat of industrial action, the many cancellations and pressures on consumer spending are all affecting visibility on future growth.

"It is perhaps no surprise that demand is proving durable for air travel given it was denied to people by COVID restrictions for so long.

"However, customers’ ability to splurge by jetting off on holiday is finite and there has to be a risk that a bumper, if disrupted, 2022 summer season becomes difficult to emulate going forward. That is particularly true when you consider how many passengers may have been alienated by last-minute cancellations and significant disruption at airports."

Watch: Airline refunds: What are your rights as a consumer?

Our goal is to create a safe and engaging place for users to connect over interests and passions. In order to improve our community experience, we are temporarily suspending article commenting