BA / IAG “to break even in Quarter 4” – and more from IAG’s January to June financial results

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IAG, the parent company of British Airways, published its half-year financial results today.

You can see the official statement here.

I am not going to run through it here because the numbers are as dreadful as you can imagine, with virtually zero passengers or revenue over the last three months.  For comparison:

Q2 passenger revenue in 2019: €6.0 billion

Q2 passenger revenue in 2020: €198 million

Cargo revenue is up 31% to €369 million

IAG first half results

What is more interesting is the accompanying commentary about where the airline goes now.  Here are the highlights from the full City presentation which you can find here.

The numbers below refer to the entire IAG group and not just British Airways, unless specifically stated.

Passenger volumes will not recover to 2019 levels until 2023

The rumoured €2.75 billion rights issue (ie issue of new shares) is going ahead.  Qatar Airways has agreed to take up its full 25.1% allocation.

IAG believes that, following its cost cutting measures, it will break even in Quarter 4 (ie between October and December).  This is on an operating cash flow basis which, given the current cash crisis in the business, is more important than an ‘accounting’ profit.  It presumably does not account for ongoing fuel hedging losses, however (see next point).

IAG lost an astonishing €1.3 billion in the last 6 months due to its failed fuel hedging strategy.  This is NOT an accounting loss, it is a real ‘cash out of the door’ loss.  (In simple terms, BA agreed in advance to pay a fixed price for a huge amount of jet fuel.  Because the price of jet fuel fell sharply after BA made the deal, the seller was entitled to the full profit it would have made on the contract even though the fuel was never delivered.  This deal works in both directions and, had jet fuel prices gone up by the same amount, BA would have received €1.3 billion.)

The £183 million fine for the 2018 BA data breach has been reduced to an estimated £20 million

Net debt at IAG level was €10.5 billion at the end of June

68 of the 143 aircraft expected to be delivered between 2020 and 2022 have been cancelled or deferred

A further 20 leased aircraft will be handed back during 2020

The cash cost of running the business is now down to €200 million per week – losses are lower than this, because revenue is now starting to come back

Capex has been reduced by €7 billion, of which €6 billion is from aircraft deferrals.  Slightly worryingly, IT spending has been cut sharply.

The ‘75% bonus when you buy Avios’ offer in June gets a special mention under ‘management actions’ for raising cash!

IAG expects to be flying 25% of its expected Quarter 3 schedule and 50% of its expected Quarter 4 schedule – this is measured in seat miles flown, so in terms of aircraft movements it will be a far higher percentage given the focus on short haul

The BA London City to New York JFK service has been permanently scrapped – this is described as “exiting A318 fleet” in the presentation

The Air Europa acquisition is still progressing

There is more, much more, in the slide presentation here.

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Comments

  1. Genghis says:

    New IAG Chair announced too.

  2. Alex W says:

    Gutted I never got to fly the Baby Bus before she retired.

    • Roberto says:

      Was a sweet ride.. the nearest I’ll ever get to being on a G5.

      • GaryC says:

        I agree, the baby bus over hyped. Unlike the 747 upper deck, it’s hard to lament its passing. Break even in Q4 sounds like a good result, from an economic management point of view it’s a well run business.

    • Mr. AC says:

      Managed to fly on it once… Was really hoping it’d survive, by far the best business class experience. Very sad to learn it’s gone for good.

      Can’t imagine it ever made much money for BA, however, too niche. Crossrail would’ve probably killed it if not of COVID.

      • Dominic Barrington says:

        A ‘marmite’ service. I flew it once and thought it seriously over-hyped. For those in East London I absolutely see the convenience factor, but other than that, I think it had less and less going for it, especially as US immigration is much easier than it used to be.

        • Mr. AC says:

          To each is own.
          However, this development begs the question – which flights will now be designated BA1 & BA2?

          • Spaghetti Town says:

            They’ll probably wait until the next niche flight comes along before re-assigning them

          • Lady London says:

            003 and 004 were also Concorde as well as 001 and 002 and I dont believe those flight numbers were ever reassigned by BA after Concorde went.

          • Lady London says:

            I think those figures show clever navigation by IAG in the circumstances.
            Better than all but 2 airlines I can think of as a basis to return to sound relatively debt-free profits, and growth when the market does.

          • ChrisC says:

            Lady London

            BA 3 and 4 were assigned and used as the second daily flight on the LCY-JFK route

        • Agreed, as per my last review.

      • Michael_s says:

        I loved it for what it was worth. Managed to book 241 for myself and mom, her first visit to states. Yes, it’s a little overhyped and yes, time saving via landing domestic to jfk is more than offset by shannon stopover but it was as close to private jet as I could get

        Speaking of which, what’s gonna happen to US immigration in Shannon? Assume scraped?

        • Nick_C says:

          I don’t think 20 pax a day is going to make any difference to the viability of pre clearance at Shannon, which predates the Dublin facility and has been going for over 30 years.

    • You really did not miss much.

      • agree. especially if you got a grumpy crew who stomped up and down the aisle during the night and kept waking you up !

  3. memesweeper says:

    Lots of new deliveries deferred and lots of planes scrapped or sent back to lessors. Clearly a massive scaling back of operations is underway for the medium term.

  4. If management would like to raise some more cash, then release some more F redemption opportunities and I’ll happily pay my associated taxes and fees

    • ChrisC says:

      The scrapping of the 747s has greatly reduced the number of F seats so don’t get your hopes up for more F redemption seats

  5. Sad reading. Not good. So sorry for all who work at BA this must be really not helping morale. I note that capex will be halved by €7billion over the next 3 years, wonder what that does to the rollout of Club Suite? Also I wonder how many of the 68 planes are actually cancelled versus being deferred? That can’t be good news for Rolls Royce, Boeing or Airbus. It seems there is going to be 1,000 more redundancies on top of the 12,000 that BA announced in April. I wonder how Unite will respond to the news and the less than rosy financial position?

    • Unite seem as per their twitter page, specifically BASSA , are probably too busy travelling around the country with their betrayal banner to comment constructively. Unfortunately we are now in August so get the impression things are moving fast and the membership looks as though going to be left high and dry unless the union has something other than industrial action which helps nobody, either staff or customers.

      • Industrial action may inconvenience passengers but it’s mostly strike action and the threat of it which win genuine compromises from management. BA are a textbook example of poor industrial relations – management are simply not trusted by a large number of employees.

  6. Of course IT spend is first to go! Always viewed as a cost centre and not a means of increasing business efficiency / customer satisfaction.

  7. Glad I had the opportunity to fly on BA1 babybus before it was scrapped. Enjoyed the novelty but realistically besides a leisurely trip it wasn’t better than the LHR ground experience and 747 in-the-air experience. Fun memories though 🙂

  8. 2023 sounds about right or even possible optimistic.

    It took five years for passenger numbers to return fully after 9/11 and that was a pretty minor event in the grand scheme of things, that only impacted America. Covid is something which has impacted the entire world.

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