BA has cut back some of its capacity growth targets as demand softens
British Airways parent
IAG said demand for flights had been hurt by the Brussels terror
attacks, weaker bookings in oil-based economies, and the possibility of
the UK exiting the European Union, causing the company to add fewer
seats than planned for the spring season.
Shares in London-based IAG fell as much as 5pc after chief
executive Willie Walsh said that these developments meant he would be
limiting capacity growth to 4.9pc compared with the 5.2pc increase
originally planned.
Demand is likely to revive in the third quarter as tourist travel
from markets such as the US and Japan recovers and a decision is reached
on a so-called Brexit following Britain’s June 23 referendum, Mr Walsh
said.
IAG reported a pre-tax profit of €124m (£96m) for the first quarter, from a loss of €37m a year ago.
Total turnover rose 7pc to €5.06bn, spurred by the
acquisition of Dublin-based Aer Lingus last year, which IAG plans to use
to add trans-Atlantic flights as BA struggles for growth at its crowded
London Heathrow hub. Excluding the Irish carrier, revenue was up only
0.7pc.
‘Reacting Fast’
The March 22 attacks and the increased prominence of the Brexit debate had since taken a toll on bookings, Mr Walsh said.
“We’re reacting fast to what we believe is a softening in
some markets,” he said. “That’s a feature of our business now; we don’t
wait around to see what the impact is. The pattern of behaviour after
the Brussels events is very similar to what we saw in the market post
the attacks in Paris, however I think it went a bit deeper.”
Mr Walsh added that
“there’s probably a case to be made for Brexit to have an impact.
Certainly anecdotally, you hear of US corporates slowing investment to
consider what Brexit could mean”.
IAG’s units are also seeing reduced demand on routes to
oil-based economies in Africa, including Angola and Nigeria, as well as
in Latin America, where the Brazilian presidential crisis is weighing on
the region’s economy, Mr Walsh said.
IAG is establishing itself as Europe’s leading network
airline as Air France-KLM Group and Deutsche Lufthansa AG grapple with
unions over cost cuts. The company’s operating profit jumped almost
70pc to €2.34bn in 2015 and Mr Walsh today reiterated forecasts for a
similar gain this year.
Mr Walsh, who formed IAG through a merger of British
Airways and Spain’s Iberia before purchasing British Midland,
Barcelona-based discount carrier Vueling, and Aer Lingus, said last
month he expected further consolidation in Europe despite low oil prices
propping up weaker carriers.
IAG has agreed to form a joint venture with Latam Airlines
Group, the biggest South American operator, and has begun code-sharing
talks with China Southern Airlines, Asia’s top carrier by passenger
numbers, and China Eastern Airlines.
Qatar Airways chief executive Akbar Al Baker said on Wednesday that
his airline, the biggest stakeholder in IAG, had lifted its holding
close to 12pc.
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