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British Airways plans a “meaningful” return to normal flight schedules in July.
Its parent company IAG has given an update on its plans for the rest of the year at the presentation of its first quarter results.
Overall, the group is in a relatively strong financial position with €6.4 billion of cash and €3.6 billion of available credit facilities as at 30 April 2020. It is inevitably reducing its fleet and schedules, but less so than many other airlines.
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Flight Schedules
Overall, IAG airlines will operate reduce planned capacity by 55% in the third quarter of this year, and 30% in the final quarter of this year.
This is significantly less than Air France-KLM which is expects to reduce capacity by 80% in the third quarter.
IAG is undertaking research of both leisure and corporate passengers as to what will encourage passengers to start flying again.
Whilst IAG supports measures such as temperature checks at airports and the wearing of face masks, it does not plan to introduce social distancing measures on aircraft such as the blocking of middle seats.
On the question of BA’s long-term presence at Gatwick, this appears to be dependent on the outcome of the planned restructuring of BA, as referred to below. Other than Gatwick, nothing was specifically said about the medium-term impact of COVID-19 on BA’s route network.
It will take time to rebuild schedules as many aircraft have been stored at airports away from BA facilities and will need to undergo maintenance checks before they return to service.
British Airways Fleet Changes
As expected, BA is to accelerate the retirement of aircraft and defer the delivery of new aircraft.
BA is to accelerate the planned retirement of two Boeing 747 aircraft in 2020. It had originally planned to reduce its Boeing 747 fleet from 31 to 25 by the end of the year.
BA had planned to retire its last Boeing 747 aircraft in February 2024. However, this may be brought forward. Please see here for IAG’s plans at its last Capital Markets Day and here for BA’s fleet plans at the start of the year.
Interestingly, nothing was said about the Airbus A380 which is a relatively poor performer in the current climate due to its high passenger capacity and low cargo capacity.
At an IAG level, the group plans to defer the delivery of 68 aircraft between now and 2022. This includes 11 long-haul aircraft and 57 short-haul aircraft – this does not affect IAG’s Letter of Intent to acquire the Boeing 737 MAX which remains in place. The reason why relatively few long-haul aircraft are being deferred appears to be because they are already financed.
IAG will also return 20 leased in aircraft in 2020 and has the flexibility to return up to 96 leased aircraft in 2021 and 2022. This could include some leased Boeing 777 aircraft at BA.
Aircraft Seating Changes
British Airways is also looking at the seating configuration of aircraft.
This will affect which existing aircraft are selected for retirement and how new aircraft are configured.
Some BA long-haul aircraft have relatively very high densities of business class seating, with up to 86 Club World seats on some Boeing 747 aircraft.
BA had also planned to take delivery of some Airbus A350-1000 by 2022 and 18 Boeing 777-9 aircraft with First Class by 2023.
BA is also looking to convert some Boeing 777 passenger aircraft into cargo-only aircraft.
British Airways Restructuring
As was announced in late April, BA is in consultation with its trade unions about a restructuring at the airline which could lead to up to 12,000 job cuts.
This will last a minimum of 45 days. There has been speculation as to BA’s motives in this and questions as to why IAG has not raised funds from the UK Government’s Coronavirus Corporate Finance Facility (CCFF). IAG has in fact raised £300m from this facility, which it says is the maximum available to it.
As is standard practice, IAG declines to give a running commentary whilst negotiations with trade unions are underway. However, IAG has said it is not the case that BA has been singled out for restructuring. Restructuring will take place across all IAG airlines. The specific BA announcement was made due the requirements of UK employment legislation. It intends to comply with UK employment legislation and reach an agreement with its trade unions.
However, Willie Walsh did not leave anyone in any doubt that he considers a period of significantly reduced demand over the next few years will necessitate a restructuring by all airlines in the industry. As we have already seen at Norwegian and Virgin Atlantic, this will mean substantial job cuts and, for BA, changes to working practices.
On the question of state support, whilst IAG supports the use of general government measures to support businesses when in a situation through no fault of their own, it does not support specific bailouts for poorly performing airlines.
Air Europa
IAG says it still makes “strategic sense” to acquire Air Europa, which has been “stressed” under COVID-19, but the deal is being kept under review.
There is a price adjustment mechanism in the agreement between IAG and Air Europa which is being reviewed by IAG. The deal is of course subject to regulatory clearance by competition authorities
CMA Review of Transatlantic Joint Business
IAG says there has been “significant progress” in the Competition & Markets Authority review of BA’s transatlantic joint-business with American Airlines.
The outcome of its review is imminent. IAG seems to be aware of its findings but declined to comment any further. This will be awaited with considerable interest.
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