British Airways owner IAG, which also owns Iberia, Aer Lingus and Vueling, is preparing to cut capacity and review investments in the wake of a downturn in demand.
It attributes the downturn to a weak pound following the Brexit vote, negative publicity flowing from terror attacks in Europe and air traffic control strikes.
IAG chief executive Willie Walsh confirmed on Friday the group had reduced its planned capacity growth for the second half of the year, “and have 2017 capacity growth and capex under review”.
IAG was reporting “another strong performance” in the second quarter, he said, with an operating profit of EUR 555 million before exceptional items which is up from EUR 530 million compared to last year.
“Excluding Aer Lingus it would be EUR 487 million,” Walsh said.
“Our performance this quarter saw a negative currency impact of EUR 148 million, primarily due to the weak pound. Numerous external factors affected our airlines including the impact of terrorism, uncertainty around the UK’s EU referendum and Spain’s political situation and increased weakness in Latin American economies.
“This led to a softer than expected trading environment, especially in June. In addition, the airlines’ operations have been considerably disrupted by 22 air traffic control strikes in Europe so far this year. This has impacted our passenger revenues.
“Our non-fuel unit costs fell 1.1%but are up 0.8%at constant currency, following the significant cost reductions achieved last year.
“In spite of the vast majority of our planned capital expenditure this year occurring in the first half, cash was EUR 705 million higher than at the end of 2015.
“In the half year, we made an operating profit of EUR 710 million before exceptional items compared to EUR 555 million in 2015. Excluding Aer Lingus it was EUR 668 million.”
Walsh said IAG had continued to experience a weaker trading environment in its UK point-of-sale business, “which represents around one third of total revenue.
“On top of this, continued pound sterling weakness would reduce pound sterling profits when translated into euros in what is traditionally the most profitable part of the year.”
Written by Peter Needham