It has been just over a year since Luis Gallego replaced Willie Walsh as CEO of International Airlines Group, the parent company of Aer Lingus, BA, Iberia, LEVEL and Vueling.
Luis has a relatively low media profile in the UK compared to Willie Walsh. This is in part due to the fact that he came to the role via Iberia, rather than BA. If you are CEO of BA you will inevitably end up on the front pages of newspapers and leading TV news bulletins.
Luis was a protégé of Willie and was regularly praised by him for establishing Iberia Express with its industry leading punctuality and for overhauling Iberia. That said, he does have a very different management style. Unlike Willie, he also likes to keep his views on rival airlines to himself.
International Airlines Group, the parent company of Aer Lingus, British Airways, Iberia, LEVEL and Vueling released its third quarter results today, Friday 30 October 2020.
The results themselves revealed few surprises. IAG had already announced last week an operating loss of €1.3 billion. Air France KLM also reported an operating loss of €1.05 billion today.
IAG’s loss was not broken down by airline but at BA passenger numbers fell year-on-year by 85.2% from 13,042,000 to 1,927,000. Load factor fell by 43.4 percentage points from 86.3% to 42.9%.
IAG’s liquidity currently stands at €9.3 billion. The group is also looking at additional measures to raise cash such as the sale and leaseback of aircraft and new sources of debt.
This will also the first results announcement presented by new IAG CEO Luis Gallego, with new BA CEO Sean Doyle also present. Unlike Willie Walsh, Luis seems to prefer to keep his views on rival airlines to himself.
Overall, it was more interesting for what wasn’t said rather than what was said. IAG did not give any indications as to what capacity or the size of its fleet may be beyond this year. The group is clearly waiting for progress a COVID-19 testing regime to lift quarantine restrictions and open up travel corridors on key routes.
IAG did illustrate what happens to passenger demand as soon as quarantine restrictions are lifted. Here you can see a surge in demand for BA flights to the Canary Islands as soon as quarantine restrictions are lifted:
The restructuring of BA is largely complete.
9,620 employees will have left the airline by the end of October. This is primarily through voluntary redundancy. A further 180 employees will leave by the end of the year.
This is expected to achieve employee cost savings of 30% in 2021. In addition, 19,800 out of 28,000 employees now have lay-off and short-term working clauses. This is good for the airline, but not so good for employees.
IAG has formally launched its €2.7 billion rights issue. In doing so the group has provided an update on its capacity plans for the rest of the year and the restructuring of its airlines.
As is usual for updates to investors from IAG these are very matter of fact and only include plans that have actually been decided, and not any measures that may be under consideration – the rights issue was itself was denied until the official announcement.
IAG has also only given information on bookings and capacity plans at a group level. It’s a given that Iberia and Vueling benefit more from a recovery in short-haul travel than BA, which is more exposed to corporate and long-haul travel.
After new bookings collapsed almost entirely in April and May, they returned to 30% of prior year levels in June.
As IAG has previously indicated, the strongest recovery was in domestic bookings (primarily Spain), then short-haul, with long-haul some way behind.
New booking activity is said have levelled off in July. Short-haul bookings have fallen slightly following the decision by the UK government to introduce mandatory quarantine measures and other European governments also introducing a mandatory quarantine on passengers returning from Spain.
As expected, long-haul bookings remain significantly depressed due to travel restrictions. However, it is said that they have improved slightly since mid-August.
Many airlines have said that significant pent-up demand is released when travel restrictions are lifted.
As measured in Available Seat Kilometres (ASK), capacity in the 3rd quarter of 2020 has been reduced by 78% compared to 2019.
In the 4th quarter of 2020, IAG plans to reduce capacity by 60% compared to 2019. These are larger reductions than IAG set out at the end of July:
Overall capacity in 2020 is expected to be 63% lower than 2019. In 2021, current plans are that capacity will be reduced by 27%. This is of course subject to change.
In IAG’s “downside” planning scenario for deciding on the size of rights issue, it has assumed a worst case scenario of a 66% reduction in capacity for 2020 and a 35% reduction in 2021.
Given the significant uncertainty on the lifting of travel restrictions and the availability of a vaccine for COVID-19, if travel restrictions remain in place in to 2021, IAG will have to raise further funds.
As at 31 August 2020, IAG had total liquidity of €7.6 billion.
This comprised of €5.8 billion of cash, cash equivalents and interest-bearing deposits and €1.8 billion of undrawn and committed general and aircraft facilities.
This compares to total liquidity of €10 billion at 30 April 2020 and €8.1 billion at 30 June 2020:
British Airways is expected to reduce its headcount by up to 13,000 employees.
By the end of August, 8,236 employees had left the airline. This was mostly by way of voluntary redundancy.
IAG says has BA has reached agreements with pilots, engineers and Heathrow customer service staff. An agreement in principle has been reached with Unite for Heathrow based cabin crew and a consultative ballot is expected to start shortly.
Other consultation discussions are said to be continuing with Heathrow ground handling and cargo operations staff, UK Contact Centre employees and Gatwick based cabin crew.
The next major update from IAG should be at its third quarter results presentation on 30 October 2020. It’s not known whether its annual Capital Markets Day is going ahead this year.
Luis has led Iberia since 2013. During that time Luis completely overhauled its management and relaunched its brand image. Prior to that, Luis led Iberia Express, frequently hailed by Willie Walsh as a model of operational excellence.
Here’s a glimpse of what is sitting in Luis’s in-tray:
The most immediate issue is of course COVID-19.
Yesterday, IAG successfully completed a rights issue to raise €2.7 billion from shareholders. This is dwarfed by €11 billion and €9 billion in state support for Air France-KLM and Lufthansa.
There is no sign of anything close to a coherent reciprocal approach between national governments on reopening borders to air travellers with consistent prerequisites and no need for quarantine restrictions. IAG’s largest long-haul markets in the Americas, and other key BA markets in India and South Africa are likely to be closed for some time.
IAG’s business model has always been to have full ownership of its airlines and make financial decisions based on “rational” investment criteria.
Willie Walsh appeared to leave the door open to IAG seeking state support in an interview with CNN last week. Should national governments provide financial support to individual IAG airlines in exchange for equity stakes, this will become problematic. Tensions between individual IAG airlines have arisen in the past and these could be exacerbated by national governments seeking to interfere in fleet and route planning decisions.
IAG will also have to expect greater influence from Qatar Airways, whose support was critical to the rights issue and has resulted in it placing two non-Executive Directors on IAG’s board.
IAG confirmed yesterday that it is still intent on acquiring Air Europa in 2021, subject to a renegotiation of the original purchase price.
According to a report in El Pais, Air Europa is seeking state support of €400 million. Whilst it may be easier to secure regulatory approval for the purchase of Air Europa when the airline industry is on its knees, regulators may still demand significant concessions on overlapping routes.
IAG must be relieved that its planned purchase of Norwegian did not go through, and with Delta having to write down its stakes in AeroMexico and LATAM to zero, that it eschewed taking minority stakes in airlines. With rising debt levels IAG is unlikely to have the means to make further acquisitions in the coming years, but it will have to look for more non-equity partnerships to drive traffic in to its networks.
IAG had big ambitions for LEVEL as a pan-European low cost brand.
At its Capital Markets Day in 2018, IAG set out plans to grow its fleet from 14 aircraft in 2019 to 42 aircraft in 2023.
LEVEL has since closed bases in Amsterdam, Paris Orly and Vienna. It is left with two aircraft at Barcelona, operated through Iberia’s Air Operator Certificate.
When IAG launched LEVEL it made much of the speed of the launch and the use of other IAG assets. It later admitted that the use of Iberia’s aircraft and AOC was in fact because it had to pre-empt a planned launch of long-haul routes at Barcelona by Norwegian.
If the acquisition of Air Europa goes ahead IAG will have five brands in Spain (Air Europa, Iberia, Iberia Express, LEVEL and Vueling). These will inevitably have to be rationalised.
BA is currently operating a limited long-haul schedule at Gatwick.
It is likely that the transfer of short-haul flights to Heathrow will become permanent to protect BA’s Heathrow slots.
Should BA substantially downsize at Gatwick, the question is what should replace it. IAG’s other brands do not have anywhere near the brand recognition of BA in the South East. None have gained any significant traction in the UK market.
IAG effectively leaving Gatwick would leave the market wide open for easyJet and Wizz Air to expand. This would, in turn, affect BA at Heathrow in the medium term.
Willie Walsh was supposed to retire as Chief Executive of International Airlines Group in March of this year.
He would have been able to claim that he had proved the doubters wrong. In ten years, IAG had become a highly profitable model of airline consolidation and “rational” disciplined financial investment. Not only that, it consistently paid dividends to shareholders. IAG was about to pull off a “transformational” deal through the acquisition of Air Europa that would turn Madrid into a major aviation hub to rival Amsterdam and Frankfurt.
COVID-19 put paid to that.
On Tuesday 8 September, as Willie Walsh steps down as Chief Executive handing over to Luis Gallego, its shareholders will be asked to contribute €2.7 billion through a rights issue.
It brings to an end 15 years of leadership of BA and IAG. Like much of his tenure, the final months have been dogged with criticism from trade unions, MPs and staff.
Willie Walsh, who has no time for “noise”, insists that he is right and that taking on considerably more debt instead of pursuing painful structural change, as Air France-KLM and Lutfhansa have primarily done, will only store up problems for the future.
Willie Walsh Joins BA
Willie Walsh joined BA as CEO in 2005, having previously occupied the same role at Aer Lingus.
He joined Aer Lingus as a pilot in 1979 and subsequently became a representative for its pilots union. Having been described by Aer Lingus management as a “really terrible bastard to deal with” he was invited to transfer to the other side of the negotiating table.
Willie’s style was a sharp contrast to his more emollient predecessor at BA, Rod Eddington.
Whilst Rod Eddington had overseen reform at BA, particularly post 11 September 2001, he was viewed by industry commentators as having avoided confrontation with trade unions and dodged the most difficult tasks.
Working practices at London Heathrow, which were no model of efficiency, had to be reformed ahead of the airline’s move to Terminal 5 in 2008.
Immediately before Willie’s arrival, there had been wildcat industrial action by BA ground staff at Heathrow, the third consecutive summer of industrial relations tensions. The Economist even speculated that BA’s move to Terminal 5 could be the aviation equivalent of the Wapping dispute of the 1980s when Rupert Murdoch took on the print unions.
There was also the issue of BA’s escalating pension deficit, which had resulted in an empty aircraft order book to replace the fleet of 57 Boeing 747-400 aircraft.
In both cases, doubters were proved wrong and the issues were largely resolved behind closed doors.
There were still volatile times. Willie Walsh stood in the early hours of the morning of the opening of Terminal 5 to greet passengers arriving on the first flight from Hong Kong, seemingly unaware of the chaos about to ensue. There were questions as to whether Willie should pay the price. Afterwards, Willie was candid in accepting that BA should not have allowed delays in the terminal’s construction to truncate testing before opening.
The restructuring of BA’s Heathrow cabin crew fleets the next year led to at protracted and, at times, unedifying, conflict.
The IAG Era
Willie Walsh left BA in early 2011 to take up the role of Chief Executive of IAG, formed as a “brand agnostic” parent of BA and Iberia, something Willie has always regarded as unique and his creation.
However, as is evident in IAG and BA’s response to COVID-19, Willie left making it clear he thought his restructuring of BA was unfinished business.
Whilst IAG has proved many sceptics wrong, there have been mis-steps. It wasn’t until that long ago that Willie was convinced that BA did not need to change its “yin-yang” layout in Club World due to its space efficiency. BA would have been spared a lot of criticism had introduced an entirely new business class seat with the Airbus A380 and Boeing 787 in 2013. BA’s high profile IT failures pointed to a lack of investment which has been addressed with a higher profile for IAG’s Chief Information Officer.
It was until only recently that IAG appears to have taken a look at the relative positioning of its brands in the market. Talk of “stretching” the BA brand a few years ago has been reversed. Staff engagement measures are also conspicuously absent from any IAG investor presentations.
Having led Aer Lingus immediately after the events of 11 September 2001 (and seen Ryanair’s blockbuster Boeing 737 aircraft order with a degree of envy) and BA during the 2008 financial crisis, Willie had always maintained that airlines must prepare themselves in the good times to withstand industry down turns.
How do you judge Willie Walsh’s tenure at BA and IAG?
Well, what would be the counter factual? Would the BA of 10 or 20 years ago survived COVID-19 without bespoke state support? Absolutely not.
Whilst IAG is better placed than most airline groups to withstand COVID-19, it remains to be seen whether it will be able to rely solely on self-help measures, let alone pull off a “transformational” deal it has always wanted to do in a downturn.
If IAG has to seek bespoke support from national governments this may fundamentally compromise IAG’s governance and structure. Should COVID-19 continue to severely impact airlines well into 2021 we may see the European governments take a more active role in the industry and much of the consolidation of the past two decades reversed.
International Airlines Group, the parent company of Aer Lingus, British Airways, Iberia, LEVEL and Vueling has set out its plans to recover from the impact of COVID-19 as it presented its 2nd quarter results on Friday 31 July 2020.
IAG reported an operating loss of €1,395 million before exceptional items, compared to a profit of €960 million last year. BA lost £711m in the quarter and its average load factor was 27.6% as passengers fell by 98.6%.
Net debt at IAG increased to €10,463 million at 30 June 2020, compared to €7,508 million at 31 March 2020.
The overwhelming priority in the medium term is the preservation of cash, and improving liquidity whilst undertaking structural changes for what is expected to be a long period of reduced demand and permanent changes to certain markets.
As expected, IAG is to undertake a rights issue to raise up to €2.7 billion.
This should complete in early September. The rights issue is supported by IAG’s largest shareholder Qatar Airways. In return, Qatar Airways will place two non-Executive Directors on IAG’s board, one of whom is the aviation executive Giles Agutter.
IAG’s approach is in sharp contrast to Air France-KLM and Lufthansa which have both secured loans of several billions from their respective governments.
In IAG’s presentation on the rights issue there are vague references to IAG being able to continue to take advantage of opportunities as demand returns, focus on “value levers” and continue to allocate capital in a disciplined manner. Put another way, IAG wants to be able to do as it pleases without the risk of government interference.
Willie Walsh did also have words of warning for European airlines that have received generous state bailouts.
You know liquidity is very important, but what you do with it is even more important. And quite honestly, without being too disrespectful to Air France we’ve seen little evidence of them restructuring their business to reflect what has historically happened never mind what we believe is going to happen in the future. Now I know Ben [Smith, CEO of Air France-KLM] is a very different leader. But, you know, our view is that the industry is structurally changed.
I gave some figures in relation to BA just to put it in to context in the media interviews I did. In Q4 2001 post the tragic events of 9/11 BA lost £187 million in the quarter. The first quarter of 2009 in the depth of the global financial crisis BA last £309 million. In the second quarter of this year in the depths of this crisis BA’s operating loss of £711 million.
Now nobody questioned the fact that 2001 and 2009 led to, you know, permanent structural change and required structural response. Anybody who believes that this is just a temporary crisis, and can be resolved through temporary measures you know is misguided so we are where we are focused on our liquidity, but more importantly we’re focused on restructuring the business to ensure that we’re in the right shape for the future.
I worry for some of the others in the industry who you know are looking at strong liquidity and are not responding to the structural change that will be necessary. And I think it will be interesting to see the rate at which some of those companies burn through their cash as we go through the rest of this year, and through 2021 and 2022.
IAG plans for capacity in the third quarter of 2020 to be reduced by 74% in the third quarter and 46% in the fourth quarter.
With load factors expected to remain depressed for some time, routes will be reinstated according to whether they are cash flow positive and this will depend on a large extent to underlying cargo demand.
Whilst Willie Walsh previously dismissed tools such as Microsoft Teams as “crap” he has accepted there is a structural change to the business travel market which cuts across both premium and non-premium cabins.
In terms of BA’s route network, Willie Walsh expects its long-haul route network to remain focused on North America due to long-standing trade links between the UK and the US. Travel restrictions between the UK and US are expected to be lifted gradually to certain airports and states and this will release pent-up demand. This suggests that some of the thinner BA routes in Africa, Asia-Pacific and the Middle East may be cut in the coming months as aircraft are reallocated between routes.
As has been previously announced, BA has immediately retired its entire fleet of Boeing 747 aircraft.
Willie Walsh cited the cost of storing aircraft, bringing them back into service and long term maintenance requirements, as well as their relatively high premium configuration.
Although London City – New York JFK has not yet been officially suspended, BA plans to retire the Airbus A318 aircraft. 13 Airbus narrow body aircraft will also be retired early.
BA plans to ground 4 Airbus A380s and up to 6 Boeing 777 aircraft for up to three years. The good news that does mean that 8 Airbus A380s should return to service relatively shortly. Up to 18 narrow body aircraft will be grounded. BA CityFlyer will also reduce its fleet.
Whilst not broken down by aircraft type, new aircraft deliveries across IAG will be reduced by 11 long-haul and 57 short-haul aircraft over the next two years.
At present, BA does not plan to reconfigure any existing aircraft.
International Airlines Group, the parent company of Aer Lingus, BA, LEVEL, Iberia and Vueling, has confirmed that it is considering a rights issue to raise up to €2.75 billion from its shareholders.
IAG issued the statement following a report by Reuters earlier this afternoon. According to Reuters, IAG is assessing other options such as the issue of a convertible bond which has been used by BA in the past.
Under a rights issue existing shareholders are offered the opportunity to purchase new shares in a company at a discount.
A rights issue by IAG is potentially complicated as Qatar Airways owns a 25% stake in the group. If a rights issue was to increase Qatar Airways’ stake in the group above 29.9% it would be required to make a formal takeover offer.
Whilst IAG airlines have taken advantage of state payroll protection programmes and state guaranteed loans, IAG is not seeking a bespoke state support package. This is in contrast to Air France-KLM and Lufthansa who have both received support from European governments running to several billion Euros.
IAG has always been against state intervention in the airline industry and seems determined to avoid state support at any cost. State support could ultimately lead to governments taking shareholdings in IAG airlines. This could undermine IAG’s business model of making investment decisions based on rational investment criteria, and not to support specific aviation hubs.
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.
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.
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.
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.
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.