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War And Oil Threaten To Overshadow Aer Lingus Owner's Pandemic Recovery

Published on Feb 25 2022 2:28 PM in General Industry tagged: Aer Lingus / IAG / british airways / Qatar Airways / International Airlines Group / Iberia / Vueling / Aeroflot

War And Oil Threaten To Overshadow Aer Lingus Owner's Pandemic Recovery

Aer Lingus-owner International Airlines Group (IAG) cancelled flights to Moscow and pledged to avoid Russian airspace on Friday 25 February as the invasion of Ukraine and surging oil prices threatened its post-COVID-19 pandemic return to profitability.

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With passenger numbers edging nearer to 2019 levels, the group which also owns British Airways (BA), Iberia and Vueling vowed to bring an end to two straight years of multi-billion-dollar losses with a return to profitability from the second quarter.

But as it published results it said the British flag carrier had suspended flights to Moscow and would not use Russian airspace, a move that can add significant costs to the industry as diverted planes fly south to avoid areas of tension in the Middle East.

Russia banned British airlines from using its airspace on Friday 25 February, a day after London barred Russian flag carrier Aeroflot. Other airlines are avoiding Russia, including Virgin Atlantic, on routes between Europe and Asia.

For BA, the diversions will currently affect around 1% of its operations as the airline is still not flying to many destinations in Asia, including China and Hong Kong.

With oil prices back above $100 a barrel, IAG ICAG.L chief executive Luis Gallego said that the company was hedged against volatile crude prices for two years, with the first year around 60% hedged. He said the conflict in Ukraine could knock general customer confidence, particularly for Americans.

"The point of sale in the US can be affected because the people can be concerned that there is a war in Europe," he said, adding that the company had not seen any impact on bookings.

Signs Of Recovery

The renewed gloom around an industry that has battled two years of travel restrictions that left planes grounded around the world threatened to overshadow the signs of recovery at one of the biggest airline groups.

IAG said on Friday 25 February that it expected passenger capacity to reach 85% of pre-pandemic levels this year, following a collapse to just 36% in 2021. And while the Omicron coronavirus variant affected bookings in January and February, it had only had a minimal impact on bookings for Easter and summer 2022.

The group reported a €2.97 billion net loss in 2021, versus a €4.39 billion loss in 2020.

"We are confident that a strong recovery is underway," Gallego said, adding that business travel had started to pick up, especially on transatlantic routes.

The group's forecast for a return to profitability assumes no further setbacks related to COVID-19 and travel restrictions or material impact from "recent geopolitical developments."

Shares in IAG are down 19% over the last year. They fell 6% on Thursday 24 February after Russia's full invasion of Ukraine forced oil prices to jump back to 2014 levels on fears of supply disruption. They opened up on Friday 25 February before sliding back 1%.

IAG, which operates 533 aircraft, has been slower than some of its peers to recover from the pandemic, due to its exposure to the slow-to-open UK market, the long-shut UK-US route and smaller cargo unit.

Passenger capacity in the fourth quarter was 58% of 2019 levels, up from 43% in the third.

IAG CEO Gallego: Not Seeing Same Degree Of A350 Issue As Qatar

The above news followed news that IAG ICAG.L is not experiencing the same degree of issues as Qatar Airways with surface degradation of paint on the Airbus A350 AIR.PA jets it operates, chief executive Luis Gallego said on Friday 25 February.

"We don't have the same type of issues that Qatar has, and we are operating A350s, and we have not had problems," Gallego told reporters.

Qatar and Airbus have been at loggerheads for months over surface flaws on A350s, some of which have been grounded by Qatar over safety concerns as its airline sues Airbus for $600 million.

Airbus acknowledges quality problems but accuses the airline of mislabelling them as a safety issue to secure compensation.

IAG's Gallego said that the industry regulatory EASA had been informed about "the situation". "They consider that we don't have any problem flying this aircraft," he said.

IAG Avoiding Russian Airspace For Overflights, IAG CEO Says

The above news also follows news that IAG ICAG.L is now avoiding Russian airspace for overflights and cancelled its flight to Moscow on Friday 25 February after UK Prime Minister Boris Johnson banned Russia's flagship airline Aeroflot from Britain, CEO Luis Gallego said.

Britain has prohibited all scheduled Russian airlines from entering British airspace.

"Following the UK government decision to ban Aeroflot from landing in the UK, we have taken the decision not use Russian airspace for overflights," Gallego said. "We are avoiding Russian airspace for the time being."

"The impact for us is not huge because right now we are only flying to a small number of destinations in Asia and we can reroute our flights."

IAG In Advanced Fleet Talks -Sources

Additionally, all of the above news that IAG ICAG.L is in advanced talks with planemakers on a medium-haul fleet shake-up that may see the Aer Lingus parent opt for Boeing BA.N and Airbus AIR.PA jets to update a European fleet of Airbus narrowbodies, industry sources have said.

IAG stunned the industry nearly three years ago when it unveiled a tentative order worth $24 billion at list prices for 200 Boeing 737 MAX at the Paris Airshow in 2019, at a time when the jet was grounded worldwide in the wake of two fatal crashes.

The global outbreak of COVID-19 early the following year caused that deal - intended as a show of confidence in troubled Boeing by then IAG boss Willie Walsh - to lapse, and the airline group later started a formal contest between Boeing and Airbus.

The sources said that Boeing looked likely to keep a slimmed-down version of the order, potentially involving closer to 50 jets than the original blockbuster quantity of 200.

The multi-national airline group also owns narrowbody operators British Airways and Spain's Iberia and Vueling.

If a deal is confirmed in ongoing negotiations, Boeing's MAX is seen most likely to be deployed at Vueling and future low-cost operations at London Gatwick.

IAG ICAG.L also has options to order additional Airbus narrowbody aircraft, inherited from earlier purchases.

But firming up new Airbus orders has hit a hurdle as the European planemaker struggles to find available production slots after taking a lead over Boeing in the market for single-aisle jets.

Further Airbus orders may also depend on progress in negotiations over undelivered A350 aircraft, the sources said.

Airbus, Boeing and IAG all declined to comment.

IAG chief financial officer Steve Gunning told analysts in November that the airline group would need some additional short-haul aircraft towards 2024 or 2025 and hinted that any order would include the 737 MAX.

"We think it's important to have strong competition between Airbus and Boeing. And we think the MAX is a very good aircraft," he told analysts.

News by Reuters, edited by Hospitality Ireland. Click subscribe to sign up for the Hospitality Ireland print edition.

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