British Airways could be the Achilles’ heel for its Madrid-based owner’s pandemic recovery this year, as the restoration of its flight capacity volumes continues to lag behind other airlines.
International Consolidated Airlines Group SA (LSE:IAG) lowered its guidance for passenger flight capacity for the second half of 2022 this morning, “mainly due to the challenges at Heathrow”, it said.
Earlier this month, Heathrow bosses introduced a cap on flights through the airport, which is expected to stay in place through to October.
“IAG’s long haul recovery continues to lag that of shorter trips in Spain and further afield, with continued restrictions in large parts of Asia not helping the matter,” said Matt Britzman, Equity Analyst at Hargreaves Lansdown.
“There’s also trouble closer to home, with Heathrow implementing restrictions on capacity for airlines, hitting BA’s recovery in particular.”
IAG cut its yearly target for passenger capacity across all of its airlines to 78% of 2019 levels, down from previous guidance of 80%.
This was despite posting a pre-tax profit of €73mln for the second quarter, up from a loss of more than €1.12bn in the equivalent period of 2021 and guiding for a full year of operating profit on the back of higher revenues.
It said operational staffing shortages at airports and hubs necessitated the capacity adjustments.
These included "managing the impact on British Airways' customers and operations of the decision by Heathrow airport to cap passenger numbers from mid-July until the end of October”.
“In response to the challenging operational environment at Heathrow, British Airways' capacity was limited to 69.1% in quarter 2 (compared to 57.4% in quarter 1) and plans to increase to c.75% in quarter 3,” said IAG’s chief executive Luis Gallego.
The British airline, which IAG acquired through a merger with Iberia in 2011, is targeting three-quarters of pre-pandemic volumes in the next quarter when it will still have to grapple with caps at Heathrow.
“As peak summer travel eases in September, the airport chaos should start to ease off, particularly with Heathrow’s move to put a limit on daily passenger capacity,” said Victoria Scholar, head of investment at interactive investor.
Other airlines such as easyJet PLC (LSE:EZJ) and on average other IAG constituents Vueling, Aer Lingus and Iberia, have recovered greater levels of pre-pandemic capacity so far.
"Iberia and Vueling were the best performing carriers within the group,” IAG said. “The Spanish domestic market and routes to Latin America continued to lead the recovery with demand exceeding 2019 levels last month.”
easyJet said this week that it is now back to 87% of pre-pandemic flight capacity, in line with guidance that was revised down earlier this year, reiterating that it expects capacity to increase to 90% in the next quarter.
IAG said the impact of Covid-19 and related travel restrictions was “significantly less than in the first half of 2021”.
However, January and February continued to be impacted by the Omicron variant, and “capacity operated out of London Heathrow was lower than originally planned at the start of the year”.
It was also hit by a €24mln “adverse” net impact from the translation of British Airways’ and IAG Loyalty’s financial results from sterling to euro.
This morning IAG’s stock spiked in early morning trades following news of the group’s return to quarterly profitability, but by midday, its share price fell back 1.02% since markets closed yesterday.
“There’s no doubt turbulence ahead, but a resilient consumer and cash flow that’s turned positive are hallmarks of a business that can push on,” said Britzman.