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| Photo NPAS |
IAG says that in light of the impact of the coronavirus COVID-19 pandemic on BA's current operations and the expectation that the recovery of passenger demand to 2019 levels will take several years, BA is formally notifying trade unions about a proposed restructuring and redundancy programme. The proposals remain subject to consultation but it is likely that they will affect most of British Airways’ employees and may result in the redundancy of up to 12,000 of them.
Last month the airline halted its limited Gatwick operation, saying "Due to the considerable restrictions and challenging market environment, like many other airlines we will temporarily suspend our flying schedule at Gatwick." some industry analysts have already stated they believe BA won't reopen ay the Sussex airport.
The largest British legacy airline has already furloughed 22,626 employees in April and comes as a massive blow to a dedicated and skilled workforce. Brian Strutton, of the Balpa union, said: "BA pilots and all staff are devastated by the announcement of up to 12,000 possible job losses in British Airways. This has come as a bolt out of the blue from an airline that said it was wealthy enough to weather the Covid storm and declined any Government support. Balpa does not accept that a case has been made for these job losses and we will be fighting to save every single one."
In a letter to staff, the company's CEO, Alex Cruz, said: "Our very limited flying schedule means that revenues are not coming into our business. We are taking every possible action to conserve cash, which will help us to weather the storm in the short-term. We are working closely with partners and suppliers to discuss repayment terms; we are re-negotiating contracts where possible; and we are considering all the options for our current and future aircraft fleet. All of these actions alone are not enough.
"In the last few weeks, the outlook for the aviation industry has worsened further and we must take action now. We are a strong, well-managed business that has faced into, and overcome, many crises in our hundred-year history. We must overcome this crisis ourselves, too. There is no Government bailout standing by for BA and we cannot expect the taxpayer to offset salaries indefinitely. Any money we borrow now will only be short-term and will not address the longer-term challenges we will face."
First quarter results
Total revenue declined by 13 per cent to €4.6 billion compared to €5.3 billion in the prior year period. Operating result before exceptional items was a loss of €535 million compared to a profit of €135 million last year. In addition, IAG’s pre-tax profit was impacted by an exceptional charge of €1.3 billion resulting from the ineffectiveness of its fuel and foreign currency hedges for the rest of 2020 due to over-hedging. This exceptional charge is measured as at the quarter end date. Detailed results for the first quarter will be released as planned on 7 May, accompanied by a presentation and conference call for analysts and investors.
The operating result in the first two months of 2020 was similar to that of last year, despite the suspension of flights to China due to COVID-19 from the end of January. All of the reduction in the operating result in the quarter compared to last year came in March. The majority of the reduction in IAG’s operating result was incurred by British Airways, followed by Iberia and Aer Lingus, while Vueling experienced a modest increase in operating loss.
Capacity
Passenger capacity, expressed in terms of available seat kilometres, declined by 10.5 per cent in the quarter. Passenger traffic in terms of revenue passenger kilometres declined by 15.2 per cent in the quarter. Seat load factor for the quarter declined by 4.3 points to 76.4 per cent.
IAG has reduced passenger capacity in April and May by 94 per cent compared to last year, only operating flights for essential travel and repatriation. Between 22 March and 26 April IAG Cargo undertook around 350 additional cargo only return flights, primarily on long-haul routes with passenger widebody aircraft. Passenger capacity from June will depend on the timing of the easing of lockdowns and travel restrictions by governments around the world.
Outlook
As announced on 28 February 2020, given the uncertainty on the impact and duration of COVID-19, IAG is not currently providing profit guidance for 2020. However, the Group expects its operating loss in the second quarter to be significantly worse than in the first quarter, given the substantial decline in passenger capacity and traffic and despite some relief on employee costs from government job retention and wage support schemes.
Total cash and undrawn general and committed aircraft finance facilities amounted to €9.5 billion at the end of March, including €6.95 billion of cash, cash equivalents and interest-bearing deposits.
Recovery to the level of passenger demand in 2019 is expected to take several years, necessitating Group-wide restructuring measures.
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