British Airways owner says earnings bets are off as coronavirus hits
- February 28, 2020
- Posted by: Anna
- Category: Stock Markets
By Sarah Young
LONDON (Reuters) – British Airways-owner IAG (L:ICAG) said on Friday that coronavirus would hit its earnings this year but it wasn’t sure by how much, becoming the latest airline to warn about the impact of the rapidly evolving outbreak.
Coronavirus, which emerged late last year in China, has sent demand for travel plunging in recent weeks as the outbreak has spread around the world. Airlines are flying blind into a crisis of unknown severity and duration.
IAG, which also owns Iberia and Aer Lingus, usually gives an earnings forecast at this time of year but said the uncertainty of the impact and duration of coronavirus meant it could not give accurate profit guidance at this stage.
“It’s a rapidly changing situation,” Chief Executive Willie Walsh told reporters on Friday. “I wouldn’t call it unprecedented. We have seen other challenges for the industry.”
British Airways has in recent days canceled flights to and from Italy, Singapore and South Korea, after it suspended all direct flights to China in January. IAG said further cancellations would follow in the coming days.
British budget airline easyJet (L:EZJ) also warned on Friday that it had seen “significant” softening of demand for travel to Italy and other European markets and would cancel flights and cut costs. Finland’s Finnair (HE:FIA1S) also warned of a significant fall in profit.
The rapid spread of coronavirus has sent shockwaves through the global economy, hammering corporate supply chains, curbing travel, cancelling conferences and sporting events, and wiping tens of billions of pounds off financial markets.
Share prices were on track for their worst week since the global financial crisis in 2008 and IAG’s is down 25% since the middle of January. On Friday it fell a further 8% to 474 pence.
The outbreak in Italy over the last week has brought new disruption to short-haul European travel but Walsh said IAG, with its strong balance sheet, was well-placed to withstand it.
“I’m very confident that we’ll navigate our way through these challenges,” said Walsh, overseeing his last quarterly results announcement before new boss Luis Gallego takes over on March 26.
Bernstein analyst Daniel Roeska backed Walsh’s thinking: “We are also confident that a downturn would reveal the strength of the IAG model.”
IAG said it was cutting costs and implementing revenue initiatives, which included looking at all discretionary spending, to help it weather the storm. That’s in line with moves by Germany’s Lufthansa (DE:LHAG) and Amsterdam-based KLM which have both cut costs in recent days.
IAG said flight cancellations due to falling demand would hit its 2020 capacity growth though Walsh said it could start adding capacity if other airlines fail and that the group was in a strong position to benefit from any recovery.
The company also said its acquisition of Air Europa remained on track for completion later this year and was not affected by the coronavirus outbreak.
For 2019, IAG reported a 5.7% drop in operating profit to 3.285 billion euros, slightly ahead of a downgraded forecast of 3.27 billion euros it gave in September when it said a pilots strike would result in a 215 million euros hit.