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Summary
- IAG has announced it Q3 2020 results, reporting a decline in revenue and incurring of operational loss
- The industry body of the airline sector has warned hundreds of thousands of jobs at risk and massive cuts in the near future.
- Further restrictions imposed in Europe have forced the airlines to reduce their capacity.
The airline industry is struggling because travellers are not able to travel and are devoting a lot of time in quarantining themselves after travelling abroad. The business is also not like before and most meetings are still done virtually. The owner of British Airways, Iberia and Aer Lingus Airlines, International Consolidated Airlines Group (LON:IAG), has announced that it will be slashing the capacity and will operate fewer flights than usual for the rest of the year as the pandemic continues to lower the demand. The cutbacks clearly mean that the company no longer expects to reach breakeven in terms of net cash flows during the fourth quarter.
Let’s have a close look at the financial highlights:
- The group incurred an operating loss before exceptional items of €1.3 billion (£1.17billion), in comparison to €1.4 billion profit reported in the same period last year.
- IAG recorded a plunge of 83 per cent in the total revenue to €1.2 billion in the quarter, compared to €7.3billion last year.
- The liquidity position of the firm remained strong. The total liquidity of €6.6 billion was recorded on 30 September, which comprised €5.0 billion of cash, cash equivalents and interest-bearing deposits and €1.6 billion of undrawn and committed general and aircraft facilities.
Operational Highlights:
- The Group also recorded a decline in the passenger capacity by 78.6 per cent in Q3, which is measured in terms of available seat kilometres.
- Passenger traffic declined by 88.0 per cent, which is measured in terms of revenue passenger kilometres.
- Seat load factor declined to 48.9 per cent by 38.8 points.
Capacity Outlook:
- The airline group notified that it would not be flying more than 30 per cent of its usual flights in comparison with the previous year.
- IAG had announced a reduction in capacity in Q3 2020 from -74 per cent to -78 per cent and from -46 per cent to -60 per cent in Q4 2020 on 10 September, as a result of the reintroduction of quarantine measures in most European countries.
The group does not expect to reach breakeven in terms of net cash flows from operating activities during the Q4. IAG said that additional measures implemented by most European countries in response to the second wave of Covid-19 infections have led to decline in the recent overall bookings.
British Airways, along with the airport owners and British carriers, have asked the government to introduce quick tests to check that passengers are free of coronavirus. The first pre-departure coronavirus testing facility in the UK has opened at Heathrow terminal. On 20 October, passengers flying from Heathrow to Hong Kong were the first to get the rapid test done for £80. Pre-booking should be opted for the tests to be done, and results will be available within an hour.
Also Read: 50 Years Journey of Boeing 747 to Come to an End in 2020
Shakeups at IAG
The IAG Group has cut thousands of jobs and made 12,000 staffs redundant at its airlines including Iberia and BA, since the pandemic took place. Within the company, the chairman and chief executive of the British Airways, Alex Cruz, is to remain as a non-executive chairman. The chairman and chief executive of Aer Lingus, Sean Doyle will become the new chief executive of British Airways. LEVEL chief executive, Fernando Candela to join as a chief transformation officer. The chief corporate affairs officer of Aer Lingus, Donal Moriarty will become interim chief executive.
Must Read: British Airways and Iberia owner's CEO Willie Walsh to step down
Stock Performance
IAG’s stock last traded at GBX 109.00 on 23 October 2020, up by 3.96 per cent from its previous close. The 52-week low/high price was GBX 91.00/671.00. It was having a market capitalisation (Mcap) of £5,206.58 million. The company recorded a negative return on price, which was 82.87 per cent on a YTD (Year to Date) basis.
A Look at Other Airline Companies
Earlier in the month of October 2020, EasyJet PLC (LON:EZJ) had warned that it could face a loss of more than £800 million in FY2020. This could be the first annual loss in its history. It is also expected to fly at just 25 per cent of normal capacity into 2021.
EZJ’s stock last traded at GBX 548.40 on 23 October 2020, up by 2.58 per cent from its previous close. The 52-week low/high price was GBX 470.70/1,552.00. It was having a market capitalisation (Mcap) of £2,441.78 million. The company recorded a negative return on price, which was 61.65 per cent on a YTD (Year to Date) basis.
Do Read: Will IAG and EasyJet (LON:EZJ) shares crash again amid surging Covid-19 infections?
Ryanair Holdings PLC (LON:RYA) recently announced that it would be cutting its winter flight schedule and would operate at only 40 per cent of last year's capacity.
RYA’s stock last traded at GBX 13.01on 23 October 2020, up by 1.05 per cent from its previous close. The 52-week low/high price was GBX 8.14/16.10. The company recorded a negative return on price, which was 12.86 per cent on a YTD (Year to Date) basis.
Conclusion
It’s not hidden from anybody that travel is one of the most hard-hit industries due to the Covid-19 pandemic. As the UK government remains fearful of the second wave of the virus, along with strict protocols for travelling domestically and internationally, Britons are avoiding flying, and the situation remains grim for the aviation industry.
