City forecast for British Airways owner IAG drops ‘significantly’ after series of cancellations and fuel price spike
The city’s forecast for British Airways owner IAG has been reduced “significantly” after a series of cancellations and soaring fuel prices.
Peel Hunt brokers have halved their annual forecast for the FTSE100 Group – which also owns Aer Lingus and Iberia – from €997m (£839m) to €495m (£416m ).
Analyst Alex Paterson has warned passengers may ‘book elsewhere’, turning to rival airlines, after computer outages and mass cancellations led to travel misery for thousands of Britons over the summer holiday. Easter.
Struggle: Recent data shows BA canceled more flights than any other airline in the first week of April
The disruptions came at a crucial time as the industry entered one of the first major holiday periods since the easing of pandemic travel restrictions.
Recent data shows BA canceled more flights than any other airline in the first week of April. Many of these were due to staff shortages and illness following another spike in Covid infections.
Low-cost airline easyJet has also been criticized for cancellations.
IAG may have to earmark money for compensation payments in the future if further disruptions occur, he said. It may also be forced to increase its marketing budget to help “alleviate customer concerns” in this case.
Rapidly rising jet fuel bills have also been a headache for carriers after oil prices hit multi-year highs earlier this year. Brent crude rebounded last year when Covid lockdowns were lifted, but rose again after Russia invaded Ukraine. Oil started the year below $80 a barrel, then surged to $130 in March.
IAG has hedged much of its fuel prices for the year, which means it has locked in prices and is less vulnerable to big swings.
But Paterson warned that IAG has less cover than many other airlines and believes its fuel bill will rise.
Peel Hunt raised its forecast from €5.9bn to €6.3bn (£5.3bn). The eye-watering sum is close to IAG’s annual turnover of €8.5bn (£7.2bn) last year, with pricing pressures potentially triggering ticket price hikes. Peel Hunt expects IAG’s turnover this year to be €21.3bn (£18bn).
The broker also said BA’s technical blunders are not what its rivals face.
The company, led by Spanish businessman Luis Gallego, will release a first-quarter trading update on May 6.
Stephen Furlong, an analyst at Davy, said the “number one reason” for analyst earnings downgrades will be the price of oil. He told the Mail on Sunday: ‘There is no doubt that rising oil prices are a huge headwind for the airline industry. Davy recently lowered his forecast for IAG’s full-year profit from €992m (£834bn) to €704m (£592bn). This was before the most recent travel chaos.
IAG’s giant debt is set to rise in 2022 as the airline ramps up investments for the post-pandemic travel rebound. Furlong said, “IAG had a pandemic where they prioritized efficiency, but now they’re prioritizing investment.”
Examples of recent spending include IAG’s plans to draft 25 new planes, as well as BA leasing four planes from FinnAir. These are expected to operate from Heathrow with FinnAir cabin crew from May to August, which could alleviate some of BA’s recent staffing issues.
John Strickland, of JLS Consulting, an independent air travel consultancy, warned that rising wages were also driving up airline costs at a time of fuel hikes. “They’re looking at a strong summer, but part of the trade-off to meet demand is likely to increase staffing costs,” he said.
BA, which recently launched its new short-haul operations from Gatwick, is offering a £1,000 welcome bonus to poach a trained crew from rivals. IAG has been contacted for comment.