ii view: IAG planning 'meaningful return' in July

by Keith Bowman from interactive investor |

Management has acted swiftly, but the fleet is still all but grounded. 

First-quarter results to 31 March 2020 

  • Revenue down 13.4% to €4.58 billion
  • Operating loss of €535 million down from a profit of €135 million
  • Loss including exceptional items of €1.86 billion
  • Net debt up 0.8% to €7.51 billion

Chief executive Willie Walsh said:

"The operating result up to the end of February was in line with a year ago. However, March's performance was severely affected by government travel restrictions due to the rapid spread of COVID-19 which significantly impacted demand. Most of the loss in the quarter occurred in the last two weeks of March.

"We had a strong balance sheet and liquidity position coming into this crisis. We are taking all appropriate actions to preserve cash, reduce and defer both capital spending and operating costs and secure additional financing in order to strengthen and maintain our liquidity.

“We do not expect passenger demand to recover to the level of 2019 before 2023 at the earliest. This means Group-wide restructuring is essential in order to get through the crisis and preserve an adequate level of liquidity. We intend to come out of the crisis as a stronger Group."

ii round-up:

Owner of airlines including British Airways, Iberia and Aer Lingus, IAG (LSE:IAG) posted a loss in these latest results as it battled the corona crisis. 

Passenger capacity has been cut by 94% under Covid-19 travel restrictions, with the current second quarter expected to much worse as the vast majority of its plane remain grounded. 

IAG shares are down by around 70% year-to-date. Air France-KLM (EURONEXT:AF) and Deutsche Lufthansa (XETRA:LHA) shares are down by 59% and 52% respectively while easyJet (LSE:EZJ)is down by 63% over the same time frame. 

Chief executive Willie Walsh, who was due to retire, will now remain in charge until September. 

IAG is tentatively planning a return to a meaningful service in July, estimating the use of only half of its passenger capacity in 2020 - although stresses the uncertainty of these plans given the current unknowns. 

Measures to combat Covid-19 include proposed staff lay-offs, cancelling the 2019 final dividend payment and potentially deferring the delivery of 68 aircraft deliveries. 

For April and May, operating costs have been cut from €440 million to €200 million per week, with cash and undrawn facilities of €10 billion available at the end of April.  

ii view:

IAG has transformed itself from the UK’s national airline to a multi-branded operator. A low-cost business model has been adopted for two of its brands, while cost reduction now features across the industry thanks to the success of rivals such as easyJet and Ryanair (LSE:RYA)

Investors in any airline company must be prepared for an often-turbulent ride. Volatile fuel costs, the threat of terrorism and industrial action by staff can all hit hard. But the corona crisis has taken the hit to the industry to a new level.

For investors, executive experience of managing crisis meant that IAG has entered the pandemic with a solid balance sheet. Swift action has also been taken to conserve cash. Plans for some limited return to business in July arguably underline management optimism. But despite a savaging of the share price year-to-date, the degree of uncertainty for the outlook is still huge, with IAG shares now for brave investors with a longer-term view.   

Positives: 

  • Strong and diverse brands
  • Cash and undrawn facilities of €10 billion

Negatives:

  • Significant uncertainty regarding any return to service 
  • Dividend payment removed

The average rating of stock market analysts:

Buy

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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