British Airways owner IAG sees return to profit from Q2 over travel rebound

British Airways owner IAG SA said it should turn profitable from the second quarter, joining other European carriers in predicting a travel rebound in coming months.

While IAG, which also owns Spain’s Iberia and Aer Lingus of Ireland, sees a “significant” loss this quarter, bookings are now running at 85% of pre-pandemic levels as concerns about the omicron variant of Covid-19 fades, it said in a statement Friday.

“Demand slowed down for very near-term trips following the emergence of omicron in late November,” Chief Executive Officer Luis Gallego said. “However, bookings have remained strong for Easter and summer 2022 having picked up in the New Year.”

The group predicted a profit for 2022 as a whole assuming no setbacks from the pandemic or material impact from the conflict in Ukraine, after posting a smaller than expected adjusted operating loss for 2021 of 2.97 billion euros ($3.3 billion).

IAG’s markets are beginning to revive after its global reach led it to be hit harder by the pandemic than short-haul rivals like Ryanair Holdings Plc. British Airways has seen a boost from the reopening of North Atlantic routes, though long-haul demand remains subdued elsewhere with some Asian countries still effectively closed to travel.

Shares of IAG traded 2.5% higher as of 8:35 a.m. in London, taking gains this year to 5.8%.

Capacity Boost

IAG plans to operate almost two-thirds of 2019 capacity in the first quarter, increasing to 85% for the full year after what Gallego said should be a “robust summer.” Seating should return to pre-pandemic levels by the second quarter in Europe and the third on North Atlantic markets, he said on a conference call.

Among IAG’s full-service rivals, Air France-KLM said Feb. 17 it would offer up to 78% of pre-pandemic capacity in the first three months, without disclosing the full-year plan. Deutsche Lufthansa AG reports results next week.

The CEO said that IAG is still talking with Air Europa on ways to collaborate after it dropped a takeover of the Spanish long-haul leisure carrier. He said that while owner Globalia is considering options with other European carriers IAG’s strength in Spain makes it the best suitor.

Optimism about European markets has meanwhile prompted the IAG to revive plans to purchase short-haul planes, Gallego said, with a tender issued to Boeing Co. and Airbus SE and a decision likely to be made as soon as the end of this quarter.

Fleet Expansion

IAG previously placed a tentative order for 200 Boeing 737 Max jets before the deal lapsed. The group is now in advanced talks on a mixed order for dozens of 737s and Airbus A320s, Reuters reported this week.

IAG is working with advisers on a review that could lead to stake sales, partnerships and joint ventures, Bloomberg reported Thursday, citing people familiar with the situation. Potential assets that might be used to raise funds include planes, IAG’s frequent-flier program and its cargo unit.

Gallego said it’s avoiding Russian airspace following the attack on Ukraine and a U.K. decision to ban Aeroflot flights. That’s seen it cancel a service to Moscow on Friday, with operations to the Indian subcontinent and Southeast Asia taking diversionary routes.

“The impact for us is not huge because right now we are only flying to a small number of destinations in Asia,” he said.