Sunday Times Interview With IAG CEO Willie Walsh

The Sunday Times has interviewed outgoing IAG CEO Willie Walsh on the current crisis facing aviation.

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Willie Walsh, Chief Executive International Airlines Group
Willie Walsh, Chief Executive International Airlines Group (Image Credit: International Airlines Group)

This week’s edition of The Sunday Times features an interview with outgoing IAG CEO Willie Walsh.

Willie is due to retire from IAG this September and will be replaced by current CEO of Iberia Luis Gallego. This was delayed from March due to COVID-19.

The interview is online. It is behind a paywall. For copyright reasons, we can only quote selectively from it.

The interview was conducted last week against a background of BA negotiating redundancies with its trade unions and public criticism of the airline by the Transport Select Committee, with allegations it is using the COVID-19 as a cover to rewrite employee terms and conditions. IAG’s rivals have received very substantial amounts of state support, including €9 billion of support for Lufthansa.

Obviously, there’s only so much ground that can be covered in an interview bound by column space on paper. Being conducted by a UK newspaper, it focuses on BA, which is of course run by CEO Alex Cruz, and not other IAG airlines.

Also, as IAG is a publicly listed company, any significant announcements have to be made to the stock exchange and not via the press. As the interview is aimed at a general audience, there’s a fair amount not covered such as capacity plans for the coming years and the impact of COVID-19 on IAG’s fleets and route networks in the medium term.

Here is a summary of the main points:

BA Passenger Refunds

First, on BA passengers waiting to receive cash refunds for cancelled flights, Willie rejects any suggestion that BA has not been paying refunds to passengers who are entitled to them.

It is claimed that BA has issued refunds to 96% of passengers who have asked for and are eligible for a refund, which is about 1.3 million people.

Many passengers would point in response they’ve not been able to get hold of the airline on the phone to request a refund.

The Crisis Facing Aviation

Turning to the scale of the crisis facing aviation due to COVID-19, Willie says the worst will not be over for airlines in 2020.

Next year will be tougher:

“The worst is yet to come. People will survive this initial crisis but next year is going to be really tough, because some airlines are surviving on the back of support they’re getting and they’re not recognising the scale of the change — and they’re hoping things will recover quickly, when I don’t believe they will: 2021 is going to be the toughest year ever for the industry and 2022 is going to be really challenging.”

“It’s as serious as this: people talked about BA facing the risk of going out of business back in 2001. Well, 2001 was a doddle compared with this. Post-9/11 was a really challenging environment — globally, passenger traffic fell in October 2001 by about 18%. We’ve seen passenger traffic fall globally by 55%.

“It doesn’t matter how strong your balance sheet was when you came into this. If you’re spending money and not generating any revenues, eventually you’re going to lose all your reserves.”

British Airways Restructuring

The proposed restructuring at BA will involve potentially substantial redundancies and changes to terms and conditions for remaining staff.

This includes merging its three Heathrow cabin crew fleets into one. Whilst BA has changed its original proposals, Willie has repeated his criticism of GMB and Unite trade unions for not engaging with negotiations:

“They could have contributed to the process. They’ve chosen not to. I think they’ve done so in the misguided belief that if they didn’t engage, somehow the programme would go away. That’s complete nonsense. I’m pleased that BALPA has engaged.”

“People who say this is opportunism, that this is something we’ve been waiting for — it’s madness.”

(BALPA has denied a report in today’s Sun newspaper that it has reached an agreement with BA.)

Willie, who has always been dismissive of what he calls “noise”, says the views of MPs such as members of the Transport Select Committee are “completely irrelevant”.

Willie also denies that IAG may be about to undertake a rights issue to raise funds from its shareholders, as reported in last week’s Mail on Sunday:

“We’d like to believe we can steer our way through this without having to do that, but I’ve been very open that we want to look at every avenue available to us. But we’re not working on anything like that at the moment.”

That’s not to say it won’t happen. IAG never gives anything away in advance as far as market sensitive announcements are concerned.

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Willie Walsh Appears Before Transport Select Committee

IAG CEO Willie Walsh answers questions from MPs at a Transport Select Committee hearing.

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London Heathrow Terminal 5A, May 2020
London Heathrow Terminal 5A, May 2020 (Image Credit: Heathrow)

IAG CEO Willie Walsh appeared before the Transport Select Committee today, Monday 11 May 2020.

Ostensibly, the hearing was about the aviation industry’s response to COVID-19. Though most of the hearing focused on the proposed restructuring of BA. There had evidently been a considerable amount of lobbying of MPs beforehand.

Those who have seen select committee hearings before will know that the level of knowledge on display and quality of questioning by MPs varies widely. There can also be grandstanding by MPs. That certainly applied today.

Willie Walsh, Transport Select Committee, 11 May 2020
Willie Walsh, Transport Select Committee, 11 May 2020 (Image Credit: BBC Parliament)

Quarantine of passengers arriving in the UK

Willie Walsh strongly criticised the decision by the UK government to impose a mandatory quarantine period on passengers arriving in the UK.

Citing the lack of scientific evidence for this decision, Willie says it will prompt IAG to review plans to restart schedules from July. The government has yet to publish full details of how the quarantine regime will work. It is likely that BA will continue to operate a minimal schedule whilst the quarantine is in operation.

BA at London City & Gatwick Airports

There has been speculation about the future of BA at London Gatwick airport.

Willie Walsh says BA still has a future at London Gatwick. BA flights are currently suspended at the airport until July. It is seen as a better airport than Heathrow in many ways, with a more commercial management team and an attractive customer base.

Willie has long had little time for Heathrow airport management, particularly their lack of commerciality. Heathrow has, historically at least, never had to make any effort to attract airlines due to the fact they will willingly pay tens of millions to operate one single return flight a day.

London City airport, which is still closed, is considered the most challenged London airport due to the fact business travel will take some time to return.

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International Airlines Group 2019 Full Year Results

IAG has released its annual financial results and provided a strategic update on the group’s airlines.

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International Airlines Group - Aer Lingus, BA, Iberia, Vueling
International Airlines Group – Aer Lingus, BA, Iberia, Vueling

International Airlines Group, the parent company of Aer Lingus, BA, Iberia, LEVEL and Vueling, has released its annual financial results.

IAG has reported an operating profit of €3,285 million for 2019, compared to €3,485 million for the prior year.

By airline, operating profits were: BA £1,921 million (down £104 million, primarily due to last year’s pilot strike); Aer Lingus €276 million (down €35 million); Iberia €497 million (down €36 million) and Vueling €240 million (down €24 million).

The announcement does of course take place against a background of considerable uncertainty over the impact of Coronavirus (COVID-19).

There is also the judgment of the Court of Appeal on a third runway at London Heathrow and the unanswered question of state support for Flybe.

This was also Willie Walsh’s last results announcement before Luis Gallego takes over as CEO on 26 March 2020.

Coronavirus (COVID-19)

Unsurprisingly, the results announcement and consequent presentation was dominated by IAG’s response to the Coronavirus outbreak.

IAG has not given any guidance on the financial impact of Coronavirus. The negative impact on demand was initially limited to Asia and had showed signs of stabilising. Following news of the outbreak in Italy this week, demand is now falling more broadly as major events have been cancelled and many organisations restrict employee travel.

IAG has reviewed its long-haul schedules up to the end of June 2020 and its short-haul schedules up to the end of March 2020.

BA has suspended Beijing and Shanghai until mid-April 2020 and cut frequencies to Hong Kong, Seoul and Italy. Iberia has also suspended Shanghai until the end of April.

Long-haul aircraft have been redeployed to India, South Africa and the US up to the end of June where demand had remained strong.

In addition to existing frequency cuts by all IAG airlines to Italy, there will be further cuts to short-haul flights across Europe, without redeployment of aircraft elsewhere, up to the end of March.

There is a careful balancing act in play here as IAG airlines have to use slots at airports such as Heathrow for 80% of the season to avoid forfeiting them. Discussions are underway at an industry level on an alleviation of this rule.

Discretionary spending is also under review. Some other investments may be deferred. A recruitment freeze is also in place. Employees will also be offered part-time work and unpaid leave, for which IAG thinks there is pent-up demand.

Unsurprisingly, as it has done for much of its existence, IAG is keen to emphasise its relative resilience and preparedness to deal with any further challenges that may be forthcoming, as well as the experience of its airlines of having dealt with previous industry crises.

IAG expects a number of weaker airlines in and outside Europe to fail this year, and other airline groups will not be buying them.

Aircraft Orders & Deliveries

There will be no changes to IAG’s plans for the delivery of new aircraft this year.

In the case of BA long-haul, this includes 5 Airbus A350-1000, 4 Boeing 777-300 and 6 Boeing 787-10 aircraft.

IAG still intends to convert its Letter Of Intent for 200 Boeing 737 MAX aircraft into a firm order. Shareholder approval will be sought when the aircraft has been re-certified and returns to service. IAG maintains that competition is needed between Airbus and Boeing for both short-haul and long-haul aircraft.

BA Club Suite Roll-Out

Whilst some investments are under review, IAG has no plans to pause or slow down the planned roll out of the Club Suite at BA. This will be accelerated if possible.

By the end of 2020, the Club Suite will be on 38 long-haul aircraft at Heathrow. This includes 9 Airbus A350-1000, 16 Boeing 777-200, 7 Boeing 777-300 and 6 Boeing 787-10 aircraft.

Heathrow Third Runway

IAG has always been a vocal advocate against Heathrow’s approach to a third runway, particularly with regard to its management of costs and the potential impact on passenger charges.

Following the Court of Appeal judgment handed down on Thursday 27 February 2020 (which Heathrow airport intends to appeal against), IAG is to call on the Civil Aviation Authority to mandate that Heathrow stops spending any further money on the new runway.

State Support For Connect Airways / Flybe

Willie Walsh did not pull any punches regarding Flybe, which is now owned by the Connect Airways consortium.

Willie does not have any sympathy for Flybe in the current environment. It’s a business model that “does not work”. Its shareholders have copped on the fact that they have “bought a dog” and Willie does not see the UK Government coming to its rescue.

Continue reading “International Airlines Group 2019 Full Year Results”

International Airlines Group 2019 Capital Markets Day

A wrap up of the major themes and trends from International Airlines Group’s annual Capital Markets Day event.

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International Airlines Group
International Airlines Group

International Airlines Group, the parent company of Aer Lingus, British Airways, Iberia, LEVEL and Vueling, held its annual Capital Markets Day today, Friday 8 November 2019.

The event followed a different format to previous years in that there were no individual airline presentations, so there’s not much news on that front.

You can download the full slide deck here. If you want to compare notes to what was announced 12 months ago, here’s our wrap up of last year.

The one significant piece of BA related news was the first published plan for the roll-out of its Club Suite at London Heathrow, which you can view here.

The roll-out of the new seat is crucial to improving Net Promoter Scores across for Club World. Whilst improvements to amenities and catering have delivered higher NPS scores in other cabins, the impact in long-haul premium cabins has been quite limited.

British Airways Net Promoter Scores 2017-2019
British Airways Net Promoter Scores 2017-2019 (Image Credit: International Airlines Group)

In terms of over-arching themes and trends for the day.

IAG Is Slowing Down Planned Growth

As last year’s Capital Markets Day, IAG said that it would grow its Available Seat Kilometres by 6% on a compound basis by 2023.

This will now be at a rate of 3.4%. In 2020, Aer Lingus, BA and Iberia will grow at a rate of 2-3%. However, there will be no growth at all for Vueling, where demand is softening in Barcelona.

IAG Is Moving To Greater Centralisation

Since its formation in 2011, the basic structure of IAG has been to centralise back-office functions, with day-to-day operations left to individual airlines.

A theme from last year was that IAG is placing more emphasis on looking at the relative positioning of its airlines against rivals in certain “demand spaces”. By its own admission, in certain market segments designed by IAG, there is scope to improve against competitors:

IAG Airline Brand Positioning
IAG Airline Brand Positioning (Image Credit: International Airlines Group)

Many functions such as the design of aircraft cabins, in-flight service design and airline branding which have been hitherto left to individual airlines will come under central direction from IAG.

Other activities such as pricing, revenue management, sales and distribution, and loyalty will move entirely to IAG. This could, for example, result in IAG implementing a single booking engine across all of its airlines.

Group Loyalty – Avios

The Avios currency and the various frequent flyer programmes that adopt them are an extremely important part of IAG, both in terms of generating revenues in their own right and driving loyalty to IAG airlines.

IAG is also exploring implementing a single loyalty programme across all of its airlines, as hotel groups do. The big difference between IAG airlines and hotels is that separate hotel brands tend not to dominate specific geographic markets.

In the UK, the BA Executive Club has a very high profile and replacing it with a new IAG-wide name could result in significant brand dilution. (One way it might get around that is an interim partial rebrand of individual schemes based around a new name, before a wholesale transfer to one programme.)

Dynamism and greater personalisation is becoming a stronger theme (eg no e-mails offering redemptions you’re not interested in!), whilst maintaining some of the prominent fixed milestones that customers can easily identify (eg the tiers of the BA Executive Club).

IAG is also looking at more opportunities to redeem Avios. Options to reduce the amount of cash payable, such as short-haul redemptions with a £1 payment and part-pay with Avios which have proven very popular. This is even where, on a scientific basis, they are not the best value use of Avios. However, it does create an important perception that Avios are easy to redeem.

At some point all IAG frequent flyer programmes will move to a single platform with a single account balance as Aer Lingus and Vueling do at the moment. This will enable, for example, a member of the BA Executive Club to use their Avios when paying for food on Vueling.

IAG is also in active discussions to add new Avios partners, particularly in the financial services sector. As you can’t fail to notice when spending any time in London, a lot of new “fin tech” companies have to spend significant amounts of advertising to acquire new customers, and partnering with Avios is seen as a way of reducing the cost of customer acquisitions.

IAG’s Fleet Plans

Over the past few months, IAG airlines have announced orders for new aircraft, notably the Airbus A321 XLR for Aer Lingus and Iberia, the Boeing 737 MAX for BA at Gatwick and Vueling, and the Boeing 777-9 for BA.

Taking into account the above orders, IAG’s fleet plan is largely unchanged. BA still plans to retire the Boeing 747 by 2024 and there have been some very slight changes to the planned pace of retirement.

BA will also begin retiring some Boeing 777-200 aircraft. This will begin next year with three “odd ball” aircraft being retired. 8 Boeing 777-200 aircraft will be left in service by 2029.

IAG still plans to order the Boeing 737 MAX, citing the need for competition between Airbus and Boeing though has yet to convert its Letter Of Intent into a firm order.

International Airlines Group Fleet Plan
International Airlines Group Fleet Plan (Image Credit: International Airlines Group)
International Airlines Group Short-Haul Fleet Plan To 2029
International Airlines Group Short-Haul Fleet Plan To 2029 (Image Credit: International Airlines Group)
International Airlines Group Long-Haul Fleet Plan To 2029
International Airlines Group Long-Haul Fleet Plan To 2029 (Image Credit: International Airlines Group)
Continue reading “International Airlines Group 2019 Capital Markets Day”

International Airlines Group To Acquire Air Europa

International Airlines Group has announced it is to acquire Air Europa for €1 billion in cash.

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Air Europa Boeing 787 Dreamliner Aircraft
Air Europa Boeing 787 Dreamliner Aircraft (Image Credit: Air Europa)

When International Airlines Group announced its third quarter results last Friday, 1 November 2019, Willie Walsh offered some warm words to one of its rival airlines Delta.

Willie praised Delta for its strategic move in acquiring 20% of LATAM airlines, thereby snatching it out of the Oneworld alliance. It also all but ended the prospect of further co-operation between LATAM and IAG airlines, which had been faltering due to regulators in Chile denying approval for a revenue-sharing joint-venture.

There was a hint that more details of IAG’s plans for Latin America were to come at its Capital Markets Day this Friday 8 November 2019, but no-one could have guessed that IAG had a plan up its sleeve.

Today, Monday 4 November 2019, IAG has announced it has reached an agreement to acquire Air Europa for €1 billion in cash.

This is what IAG would term a “transformational deal”. It significantly increases its presence at Madrid, by some 50%.

Whilst IAG making this move as revenge on Delta makes for a good story, this deal is likely to having been brewing for some time as it is highly unlikely that due diligence could be completed and terms agreed within a little over a month.

There are competition concerns. It is inevitable that remedies will be demanded by regulators and there can be no certainty that these will be palatable to IAG.

About Air Europa

Readers in the UK will be forgiven for not knowing much about Air Europa.

It is the third largest airline in Spain after Iberia and Vueling, operating a fleet of 66 aircraft, principally to destinations in mainland Europe and Latin America. It has a relatively limited presence in the UK, flying from London Gatwick to Madrid.

Air Europa serves a number of destinations in Latin America not already served by IAG airlines such as Cordoba in Argentina and Recife in Brazil.

Air Europa is currently a member of the SkyTeam and will leave the alliance after its acquisition by IAG.

IAG’s Acquisition Of Air Europa

IAG has confirmed the following details this morning:

IAG will initially retain the Air Europa brand and it will operate as subsidiary of Iberia. IAG views the airline as operating as a “value carrier” in the mould of Aer Lingus. This suggests that it won’t be fully integrated into Iberia. However, as Iberia has a stronger brand presence in Latin American markets, it is likely it will adopt a brand name closely associated with Iberia.

IAG Air Europa Brand Positioning
IAG Air Europa Brand Positioning (Image Credit: International Airlines Group)

Like Aer Lingus, Air Europa is unlikely to join the Oneworld alliance as a full member but may join as a “Oneworld Connect” partner.

IAG is keeping its cards close to its chest as to how its operations will be ultimately integrated into the group. When IAG acquired bmi in 2012 some in IAG pressed for the airline to be kept separate from BA and IAG secured productivity improvements from BA pilots as condition of its integration into BA. IAG may do the same here.

There’s also little fleet commonality with Iberia as Air Europa operates the Boeing 737 and Boeing 787, neither of which are used by Iberia.

IAG Air Europa Fleet
IAG Air Europa Fleet (Image Credit: International Airlines Group)
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International Airlines Group 2019 Half Year Results

International Airlines Group has announced its half year results and provided a strategic update on its airlines.

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CGI Image of Heathrow Airport Masterplan 2050
CGI Image of Heathrow Airport Masterplan 2050 (Image Credit: Heathrow)

International Airlines Group announced its half-year results today, Friday 2 August 2019.

IAG is a group that prides itself on consistency, so there are no great surprises in the numbers.

Operating profit for the 2nd quarter increased to €960m compared to €900m in the previous year. Operating profit for the half year was down however to €1,095m from €1,240m.

The results are announced against a busy news background for IAG airlines, notably the threat of industrial action at BA and a proposed fine of £183m from the Information Commissioner’s Office following the data breach at ba.com in 2018.

Overall, markets are generally very steady with pockets of weakness as expected in Argentina and Brazil and over-capacity in China.

BA Industrial Relations

Both IAG CEO Willie Walsh and BA CEO Alex Cruz declined to give a running commentary on negotiations with the pilots union BALPA on pay negotiations with BA pilots.

Talks are currently taking place between BA and BALPA at the conciliation service ACAS. Willie Walsh made it clear that IAG is not getting involved in negotiations and it is a matter for BA to deal with – this is consistent with IAG’s structure from its founding in 2011.

Whilst Willie Walsh paid tribute to the professionalism of BA pilots, reading between the lines IAG seems conscious of not setting a precedent for other BA workgroups and employees of other IAG airlines. BA simply paying to make the matter go away would not be palatable to IAG who have always said that cost discipline must be maintained.

Willie Walsh did also intimate that the resources of other IAG airlines may be called upon in the event of industrial action at BA. Though, it is hard to see what can be done at the peak of the summer season. Trade unions representing employees of other IAG airlines would also not be prepared to cross the boundary of assisting in breaking another airline’s strike.

Aircraft Orders & Deliveries

Willie Walsh once again reiterated his disappointment with Airbus on late deliveries with Airbus and described talks with Boeing as constructive.

There’s no indication of when IAG’s Letter Of Intent to buy The Boeing 737 MAX will be converted into a firm order. However, some deliveries may be accelerated into 2022:

International Airlines Group Half Year Results 2019 (Image Credit: International Airlines Group)

And just to remind you that the recent aircraft orders that we have, including the LOI with Boeing is absolutely consistent with the planned aircraft deliveries that we gave you at Capital Markets Day. In fact, as you can see from this, we still have an outstanding aircraft to be decided on. So we’re pleased so far with what we’ve ordered, there is more work that we need to do. Disappointed, as you’ve heard me say previously, with the performance of Airbus, very poor delivery from Hamburg on the A321. It’s not just for us, as you know, I’m sure by now you’ve heard every airline that is excited about taking the 321LR express huge disappointment about the delays that they encountered.

We need Airbus to improve their performance. And they need to get working on that very quickly. Because quite honestly, the delays that we’re seeing are just completely unacceptable. And it is impacting on the growth plans that we have. That’s particularly true of we want to do with Aer Lingus on transatlantic. And we’re having very, very constructive discussions with Boeing and the LOI that we signed, talked about deliveries between 2023 and 2027, we’re actually looking to see if we can get some of those deliveries in 2022. And the engagement with Boeing has been very positive and very constructive.

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An Update On International Airlines Group’s Fleet Plans

A survey of the fleet renewal and expansion plans for the airlines of IAG following orders placed at the Paris Air Show.

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Aer Lingus & Iberia Airbus A321neo XLR aircraft, BA Airbus A321neo aircraft, BA Boeing 777-9 aircraft.
Aer Lingus & Iberia Airbus A321neo XLR aircraft, BA Airbus A321neo aircraft, BA Boeing 777-9 aircraft. (Image Credit: Airbus, British Airways, Boeing)

IAG airlines are not normally ones to make headline grabbing aircraft orders at air shows.

Such muscular displays of buying power are normally left to others. This year, however, IAG stole the show with a Letter Of Intent to buy 200 Boeing 737 MAX 8/10 aircraft from Boeing. These have been earmarked for BA at London Gatwick, LEVEL and Vueling.

If it becomes an order, it will be IAG’s single biggest aircraft order in its 8 year history and it will more than exceed IAG’s current short-haul growth ambitions. According to press reports, Airbus did not get the chance to tender against Boeing, and would like to make a counter-offer to IAG.

This week’s news, and other recent announcements this year, does give a little more colour on IAG’s plans to renew and grow its fleet.

To recap, at IAG’s Capital Markets Day last November, IAG set out its plan to grow its short-haul fleet from 386 to 467 aircraft by 2023. Long-haul aircraft are expected to increase from 201 to 249 by 2023.

However, in terms of how this is done, much of this growth – some 128 short-haul and 44 long-haul aircraft – was left as “to be decided”.

International Airlines Group Capital Markets Day
International Airlines Group Capital Markets Day (Image Credit: International Airlines Group)

Taking account of recent announcements, we now know of the following plans by airline:

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IAG Signs Letter Of Intent For 200 Boeing 737 Aircraft

IAG has signed a Letter Of Intent to acquire 200 Boeing 737 aircraft for delivery between 2023 and 2027.

London Air Travel » International Airlines Group

British Airways Boeing 737 in Landor livery
British Airways Boeing 737 in Landor livery (Image Credit: British Airways)

The Boeing 737 may make a return to British Airways at London Gatwick as its parent company International Airlines Group has signed a Letter of Intent with Boeing to acquire 200 Boeing 737 MAX aircraft.

It is important to emphasise that this is not a firm order for aircraft – which is no doubt subject to the aircraft receiving regulatory approval to return to service.

IAG anticipates an order of 200 aircraft for delivery between 2023 and 2027. The order will be a mix of Boeing 737 MAX 8 and Boeing 737 MAX 10 aircraft. The 737 MAX 8 seats up to 178 passengers in a two-class configuration. The 737 MAX 10 jet can seat up to 230 passengers.

IAG anticipates that the aircraft would be used by British Airways at London Gatwick, LEVEL and Vueling.

It is noteworthy that IAG is prepared to introduce another type of short-haul aircraft into its fleet when it has made much of standardising the configuration of Airbus A320 aircraft to maximise efficiencies and allow aircraft to be moved between different airlines in the group.

That IAG has specifically earmarked the aircraft for BA at Gatwick and its low cost brands LEVEL and Vueling may signal its intentions for the aircraft. All three are likely to be competing against each other to acquire the aircraft and it is highly likely that the internal configuration will be standardised as much as possible.

IAG had previously advised that BA short-haul at Gatwick would be an exclusively Airbus A320 operation. The Boeing 737 originally operated for BA from 1980 until the last aircraft was retired at Gatwick in September 2015.

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IAG Orders Airbus A321XLR Aircraft For Aer Lingus & Iberia

International Airlines Group has announced it has ordered 6 Airbus A321XLR aircraft for Aer Lingus and 8 aircraft for Iberia.

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Airbus A321XLR aircraft render
Airbus A321XLR aircraft render (Image Credit: Airbus)

International Airlines Group has announced it has ordered 6 Airbus A321XLR aircraft for Aer Lingus and 8 aircraft for Iberia.

The first aircraft will be delivered from 2023. The group has also secured options for a further 14 aircraft, which could be used by any airline in the group.

This is a clear vote of confidence by IAG in the Airbus A321XLR aircraft.

IAG is now doubt attracted by is efficiency and commonality with the Airbus A320 series. It is noteworthy that IAG is keen to emphasise it will offer the same passenger comforts as existing wide body aircraft.

For both Aer Lingus and Iberia, IAG emphasise that the aircraft will be used to facilitate transatlantic expansion.

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International Airlines Group 1st Quarter Results

IAG has released its financial results for the 1st quarter of 2019 and provided a strategic update on the group.

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International Airlines Group and its subsidiaries
International Airlines Group and its subsidiaries

International Airlines Group has today, Friday 10 May 2019, reported an operating profit of €135m for the first quarter of 2019.

This compares to a profit of €340m for the previous year. The fall in profit is principally due to the timing of the Easter holidays, but also fuel prices and increased capacity in Europe.

IAG’s results compare to widening losses of €303m at Air France-KLM and €344m at Lufthansa. However, of IAG’s five principal airline brands, only BA was profitable in the quarter.

The first quarter results announcement is a relatively quiet one for news and strategic updates, but IAG provided the following commentary to analysts:

Market Performance

In terms of market performance, UK based demand and North Atlantic routes are holding up well.

Weak areas are demand from some countries in mainland Europe and routes to Argentina, Brazil, Hong Kong and South Africa.

In the case of Hong Kong, IAG has cited increased capacity from Europe to the region by carriers in mainland China. Cathay Pacific has also added significant capacity to London and other airports in mainland Europe in recent years. Weakness in other regions is principally due to macroeconomic factors. Argentina and Brazil are expected to improve later in the year.

IAG has already cut capacity to South Africa by suspending Iberia’s route from Madrid to Johannesburg and moving four weekly BA Boeing 787 flights from Heathrow to Johannesburg to Mumbai. It is unlikely that these flights will return for the winter season.

Elsewhere, LEVEL is performing well and is profitable in Barcelona. However, performance in Paris Orly is behind expectations. IAG has cited competitive activity in the market.

As for JetBlue’s plans to launch flights from Europe to Boston and New York, IAG is adopting a wait and see approach until JetBlue confirms which airports it will operate from.

Acquisitions

Unsurprisingly, IAG has no interest in bidding for any of part of Thomas Cook’s airline business.

Lufthansa is a likely candidate to acquire Thomas Cook’s Condor airline in Germany. Sky News has also reported that Virgin Atlantic has expressed an interest in acquiring Thomas Cook’s long-haul business in the UK.

In terms of future acquisitions, IAG had a standard response that there’s no activity at the moment. IAG confirmed that there no regulatory reasons why it could not make another bid for Norwegian, but has no plans to do so.

British Airways

During the full year results presentation IAG were asked repeatedly about industrial relations at BA and pay negotiations with its trade unions.

There’s been little news since, and all IAG would say today is that negotiations were ongoing.

IAG expects to receive further compensation from Rolls-Royce due to the grounding of Boeing 787 aircraft for additional engine checks and maintenance. BA has today announced a number of tactical cancellations up until the end of August.

What wasn’t said..

There were no updates on ongoing regulatory issues, such as Aer Lingus seeking approval to join the AA/BA transatlantic joint-venture and the review by the Competition & Markets Authority of the joint-venture.

There were also no updates on regulatory approval for the joint-venture between BA, Iberia and LATAM, which subject to an appeal in Chile. Nor were there are any updates on investigations in to the data breach of ba.com last year.