IAG records a huge loss as Omicron variant hits demand

BA owner IAG records a huge loss after Omicron blows its Covid recovery off course and operating costs escalate

  • The British Airways owner reported a £916m loss in the opening quarter of 2022
  • International Airlines Group (IAG) also operates the Irish flag carrier Aer Lingus
  • Costs were heightened from ramping up operations to cope with rising demand 

International Airlines Group has posted another massive first-quarter loss after demand for flights was blown off course by Omicron.

The British Airways owner reported a £916million loss in the opening three months of the year, even though the airline industry benefited from lesser international travel restrictions than it did the previous year.

Passenger revenue climbed more than fivefold year-on-year to €2.66billion as capacity increased to around two-thirds of their 2019 volumes, a figure projected to grow to 80 per cent in the current quarter.

Yet ticket sales were depressed by the introduction of a fresh round of various cross-border curbs by governments across the world in response to the emergence of the Omicron variant. 

Big loss: British Airways owner International Airlines Group (IAG) reported a £916million loss in the opening three months of the year, compared to £1.2billion in the same period in 2021

In the UK, all those arriving in the country from late November to mid-February were required to take a PCR test two days after arriving and self-isolate until they received a negative test.

IAG chief executive Luis Gallego additionally blamed the ‘normal seasonality’ of the airline business for the firm’s huge loss, which only declined by 24 per cent from the same period last year.

Losses were also heightened by much higher outlays from boosting operations to cope with the release in pent-up demand, including supplier costs, expanding staff numbers, landing fees and en-route charges.

Alongside this, there has been a surge in fuel prices in the last year caused by the global economic recovery from the Covid-19 pandemic, weak output levels, and Russia’s full-scale invasion of Ukraine.

‘Globally, the travel industry is facing challenges as a result of the biggest scaling up in operations in history, and British Airways is no exception,’ Gallego remarked.

‘The welcome removal of UK’s stringent travel restrictions, combined with strong pent-up demand, have contributed to a steep ramp-up in capacity. The airline’s focus at the moment is on improving operations and customer experience and enhancing operational resilience.’

Gallego noted that demand was recovering in line with expectations, with business travel rebounding strongly, but premium leisure holidays remained the best-performing category.

IAG, which also owns Irish flag carrier Aer Lingus and Spanish airline Iberia, currently forecasts seat capacity to reach 85 per cent of its pre-pandemic volumes in the third quarter when the summer flying season is in motion.

Sophie Lund-Yates, the lead equity analyst at Hargreaves Lansdown, said: ‘Looking to the rest of the year, the outlook makes for reasonable reading. IAG will take longer to recover than its short-haul focused friends, but that doesn’t mean it should be discounted. 

‘There’s an argument to say that now the world is largely re-opening, customers could be inclined to splurge on a long-haul trip having been stuck at home for years. 

‘The other side of that story, though, is of course, the cost-of-living crisis. Those that often travel first class are likely not going to see much of a change in spending habits, but the situation may well act as a drag on BA’s shorter duration routes.’

IAG shares dived 7.1 per cent to 133.2p in early trading, making it the top faller on the FTSE 100 Index, and meaning the group’s share price has plunged by 29.1 per cent in the past 12 months. 

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