British Airways Owner Warns Industry Woes to Persist Into 2020

LONDON (Capital Markets in Africa) British Airways owner IAG SA warned that challenges facing the European airline industry are set to continue into 2020 after cutting profit guidance for this year.

IAG lowered capacity growth in the final quarter and will provide details in November of a decrease next year, Chief Executive Officer Willie Walsh said on a call with analysts on Thursday. Earnings for this year will be about 6% lower than forecast in the wake of strikes at British Airways, its biggest unit, and depressed ticket prices at low-cost operations Vueling and Level.

The gloomier outlook provides further evidence of tribulations in the travel industry as a European economic slowdown gathers pace. U.K. tour operator and airline Thomas Cook Group Plc collapsed this week, while eight other European carriers have folded within a little more than a year. In addition to the dispute with pilots, IAG is facing persistent overcapacity in Europe and fluctuation in fuel prices.

“Most airlines are moderating their capacity-growth plans,” said Walsh, adding that more bankruptcies are likely to follow Thomas Cook’s demise. “A number of airlines, weaker ones, are either disappearing or significantly reducing capacity.”

The comments sent aviation stocks lower. IAG fell as much as 5.4% and traded down 2.4% as of 10:17 a.m. in London, extending a decline for the year to 19%. Deutsche Lufthansa AG declined 2% in Frankfurt, while Ryanair Holdings Plc dropped 1.4%.

At IAG, full-year capacity growth is expected to be about 4%, compared with an earlier forecast of 5%. Operating profit before exceptional items will be 215 million euros ($235 million) lower than 2018 on a pro forma basis, the carrier said.

British Airways has been rocked this summer by its first pilot strike since 1979, which led to the cancellation of more than 2,300 flights and a financial hit of 137 million euros. The rest of the profit shortfall comes from lower ticket prices from Vueling’s operations in Italy and France and on Level’s long-haul routes to Latin America, particularly in Argentina.

There have been no further talks between British Airways and the main pilots union, and its most recent offer of an 11.5% pay increase over three years still stands. The carrier warned that further industrial action could lead to additional cuts to its full-year earnings outlook.

Source: Bloomberg Business News