Mayday at IAG as losses mount

Rising fuel costs and Spain's economic crisis have caused profits at British Airways owner IAG to nosedive in the first quarter.

by Rebecca Burn-Callander
Last Updated: 19 Aug 2013

CEO Willie Walsh is enduring a spot of turbulence over in the cockpit of International Airlines Group. Losses for the first quarter have hit €263m, a massive drop from the €43m shortfall reported this time last year. And this is despite revenues rising 7.8% to €3.9bn and average passenger spends rising 8.5%.  

The main drain on IAG’s cash is fuel. The airline spent £1.4bn on the stuff in the last three months, up 25% on 2011. And these costs are still rising, with fuel expected to add an extra billion euros to the cost ledger in this financial year.  

But IAG has another problem: a sizeable chunk of its business comes from the eurozone. Not the most reliable customer at present. Especially not Spain, which is in the eye of the storm at present. Iberia, IAG’s Spanish airline, has had its financial wings clipped this quarter, posting a €170m loss. And that’s not all. Industrial action by Iberia pilots cost a further €25m as planes were grounded. To add insult to injury, Spain is about to increase departure taxes by 10% per passenger too.

The best performer of the group this year was British Airways. The London jet-set have been heading off on transatlantic adventures unimpeded by recession. But even this market cannot prop up the whole company. Especially not with air passenger duty increasing at double the rate of inflation. Walsh reckons that, at the rate IAG is going, the company will only break even this financial year. And he's making no bones about where the blame for that lies: ‘The financial performance of our business continues to be undermined by government actions,’ he said this morning. 

And he’s not going to catch a break any time soon. The European Commission is forecasting a further 0.3% contraction in the eurozone economies over the coming months. bmi Regional may have been sold this week but bmi Baby is still a dead weight on the balance sheet. Strap in, Willie. It’s going to be a bumpy ride.

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