IAG Has Cut Its Operating Costs By Over Half As 9,620 Leave BA
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As we continue our coverage of aviation industry Q3 results, today saw British Airways owner IAG reveal its finances from July to September. The airline made a €1.3 billion ($1.5 billion) operating loss for the period. However, it did manage to cut its operating costs by over half.
Around the world, the aviation industry is still reeling from the impact of the ongoing COVID-19 pandemic. The International Airlines Group, consisting of British Airways, Aer Lingus, Iberia, Level, Vueling, and IAG Cargo, is no exception. The group is particularly affected as Europe enters its second wave of the virus.
Capacity remains down
One of the main reasons airlines are struggling with the current situation is the severe lack of currently experienced passengers. When passengers don’t fly, they don’t pay for tickets, meaning a vital revenue tap is cut off. Rather than operating many empty flights that would only cost money, the airline industry has slashed its capacity.
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The recovery of IAG’s capacity is happening, but it is a process that is occurring slowly. In February, the group operated 102.9% of the flights it had in the same month of 2019. However, things went downhill from March onwards, with the group running just 4.7% of its 2019 schedule in the second quarter.
This began to rise again in Q3 as the group operated 21.4% of the 2019 schedule. However, the increase won’t be so significant in Q4. IAG has said that the best-case scenario would see it operating 30% of its 2019 schedule.
So far, those returning to flying have been the visiting friends & relatives and the leisure markets on its short-haul routes. The group said that its priority moving forwards would be to encourage passengers to fly again. They mentioned that measures such as testing in place of quarantine could help the corporate sector to recover.
9,620 have left British Airways
Earlier this year, British Airways said that it might have to say goodbye to as many as 12,000 employees as it copes with the pandemic’s impact. So far, 9,620 members of staff have left the British flag carrier. Around 80% of these departures were voluntary, with the remainder being compulsory layoffs agreed with unions.
180 more members of staff are expected to depart by early next year. With a far smaller payroll, British Airways has cut its employee costs by around 30%. However, it is still yet to address cargo handling. The group added that 19,000 of the 28,000 UK employees now have layoff and short-time working clauses in their contracts.
Across the Irish Sea in Dublin, around 800 employees have left from Aer Lingus. These employees were mostly on short-term contacts, with some having been transferred to an external supplier. All the remaining employees have been affected by hours and pay cuts.
In Spain, non-union employees of Iberia have seen their pay cut by 10-45%, depending on how senior they are. Meanwhile, Vueling’s non-union employees have seen an 18% pay cut, with 20% of management positions being removed. LEVEL has closed its Vienna, Amsterdam, and Paris bases subject to consultation, resulting in 430 redundancies.
In total for the quarter, the group posted an operating loss of €1.3 billion. It has seen its passenger revenue plummet by 88.6% to just €737 million ($860 million). While it wasn’t enough to ensure a profit for the group, the airline saw its cargo revenue increase by 12.3% to €302 million ($352 million). The group has placed a focus on flying cargo while passengers aren’t traveling.
On March 31st, the group had liquidity of €9.5 billion ($11 billion). This had fallen to €6.6 billion ($7.7 billion) by September 30th. However, with the group’s €2.7 ($3.2 billion) capital increase, it will return to €9.3 billion ($10.8 billion).
One fundamental way that airlines are looking to weather the storm is by reducing their costs. On a typical week, IAG airlines would cost €450 million ($525 million) to operate. Excluding €7 million ($8.2 million) now being spent on cargo flights each week, IAG is now spending €198 million ($231 million) on weekly operations.
What do you make of IAG’s Q3 results? Let us know what you think and why in the comments!
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