British Airways parent IAG SA reported worse-than-expected earnings and tempered plans to boost capacity after staffing shortages at London’s Heathrow airport slowed its U.K. expansion.
Shares of IAG fell 12% Friday, the biggest drop in almost six months, after the company reported a first-quarter operating loss of 731 million euros ($769 million). Operations were hit by IT glitches together with the reduced growth at Heathrow as British Airways grappled with a requirement for 4,000 recruits.
IAG now aims to provide 80% of its 2019 capacity in 2022, down from the 85% touted in February, providing a breathing space as it seeks to boost resilience at the Heathrow operation. Chief Executive Officer Luis Gallego said seating on key North Atlantic routes should still be close to normal by the summer peak.
The labor squeeze comes after British Airways fired 10,000 workers during the Covid pandemic rather than furlough them, and means the carrier risks missing out on a travel bonanza as curbs end. Deutsche Lufthansa AG and Air France-KLM said Thursday they’re increasingly confident that surging demand will spur a summer boom as people head for the beach after two years of restrictions.
Sanford C. Bernstein analyst Alex Irving said the first-quarter result looked “ugly” for IAG and that it had adopted a noticeably “more measured tone” compared with the bullish outlooks of its German and French rivals.
London-based IAG traded 7.8% lower at 132.1 pence as of 10:28 a.m. in the U.K. capital. The stock is down 7% for the year, compared with gains of 11% and 2.4% at Lufthansa and Air France-KLM respectively.
Gallego reiterated that the group expects to be profitable for the current quarter and the full year, spurred by bookings now at 90% of pre-pandemic levels amid strong premium-leisure sales and a return of business travel.
‘Stability’
He said the ramp-up at Spanish arm Iberia has been less tortuous because it let fewer people go than British Airways at the height of the pandemic. Overall, BA expects to operate 74% of 2019 capacity during 2022, compared with 86% at Iberia, 88% at Ireland’s Aer Lingus, and 100% at discount division Vueling.
“We are adjusting the capacity of British Airways in order to give more stability for the summer,” the CEO said on a media call. “We are reducing the scheduled program, mainly the short haul. What we want in the end is to give convenience to the customer and stability to the program.”
The changes will affect about 10% of BA’s planned Heathrow schedule through the end of October. In order to mitigate the situation partner carriers will provide capacity support, with Finnair Oyj supplying 10 narrow-body jets with crews and American Airlines Inc. taking over a Miami service. Temporary flight attendants will be sourced from Spain and self-service bag-drops doubled.
About 1,600 people have now been hired, with 3,100 more going through the process as additional head office staff are redeployed to recruitment roles.
Inflation Impact
The concern for BA will be that by the time the Heathrow operation is fully functional, much of the immediate rebound in travel demand may have passed, with spiraling household expenses and fare hikes prompted by rising fuel costs putting pressure on bookings.
Lufthansa said in its earnings update that it’s unsure of prospects deeper into the year, with the oil-price trend and consumer behavior as inflation climbs impossible to predict. Heathrow itself last week raised its passenger forecast on strong spring bookings while warning that demand is likely to drop off in late summer and beyond as the boom gives way to a “winter freeze.”
