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Aer Lingus

Coronavirus Costs IAG $1.6 Billion in First Six Months of 2020

Coronavirus Costs IAG $1.6 Billion in First Six Months of 2020
Joe Cortez

International Airlines Group experienced a catastrophic first six months of 2020, after the rapid spread of COVID-19. The airline reported a loss of $1.6 billion over the opening two quarters of the year, exacerbated by grounded aircraft and a lack of passengers traveling around the world.

When International Airlines Group Willie Walsh said British Airways was “Fighting for Life,” his statement could equally be true of the entire conglomerate. In their most recent financial report, the company reported a loss of $1.6 billion (€1.365 billion) over the first half of the year, directly tied to the novel Coronavirus outbreak. The airline said their results were “significantly impacted by the outbreak of COVID-19, which has had a devastating impact on the global airline and travel sectors, particularly from late February 2020 onwards.”

Quarterly Passenger Traffic Down 93.5 Percent; Average Weekly Burn Rate North of $200 Million

The second quarter was particularly devastating for the company operating Aer Lingus, British Airways, Iberia and Vueling. Between April and June 2020, total passenger traffic was down by 93.5 percent compared to the same time in 2019. Comparing the first six months of 2020 to 2019, passenger traffic was down by 56.2 percent.

“All IAG airlines made substantial losses,” IAG chief executive Willie Walsh said in a press release. “We have seen evidence that demand recovers when government restrictions are lifted. Our airlines have put in place measures to provide additional reassurance to their customers and employees on board and at the airport.”

Without passengers, the airline operator said their weekly burn rate was around $240 million (€205 million) in the second quarter. With the retirement of British Airways’ fleet of 32 Boeing 747s and other aircraft, the company was able to reduce the burn rate for April and May 2020 down to around $229 million (€195 million).

As international borders remain closed and passenger demand remains at all-time lows, Walsh and IAG are joining the chorus of voices who agree that the aviation space will get worse before it improves. The executives say this gives the airlines an opportunity to right-size and become more competitive.

“We continue to expect that it will take until at least 2023 for passenger demand to recover to 2019 levels,” Walsh said in the press release. “Each airline has taken actions to adjust their business and reduce their cost base to reflect forecast demand in their markets not just to get through this crisis but to ensure they remain competitive in a structurally changed industry.”

American Express Purchase of Avios Considered Best Way to Leverage Loyalty Asset

During the investor call, Credit Suisse asked about the American Express purchase of nearly $1 billion in Avios from IAG. In response, the conglomerate defended it as one of the best ways to leverage their loyalty program.

“[Loyalty] continues to be a great asset,” Steve Gunning, chief financial officer of IAG, said on the call, according to a transcript posted to Seeking Alpha. “And we have obviously explored all thoughts when we’ve been looking at liquidity as to how best to leverage that asset. Our view is the Amex deal is the right way to do this. I don’t think at this stage securing borrowings off of our holding in Avios would be a sensible way forward. We think it’s a key strategic asset for us, and I think the Amex deal is a smart way to increase liquidity without affecting our position with regards to it.”

The company also revealed the deal with American Express was over eight years, and they would not receive the money in one lump sum. Gunning only noted: “we’re receiving in due course a significant element of that related to a prepayment as it were on miles.”

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