Aer Lingus owner IAG slashes costs to survive Covid chaos

Aer Lingus and British Airways owner IAG's new chief executive Luis Gallego has warned he may have to strip even more costs from the business as a second wave of Covid-19 leaves its airlines staring at a bleak winter with very little travel.

Forecasting fourth-quarter capacity at just 30 per cent of 2019 levels, IAG also stepped up its demand for governments to adopt pre-departure testing to allow quarantine-free travel as Europe locks down once again.

“Talking about my priorities, I think first of all we need to continue with the restructuring process that we have in place; we need to continue reducing our cost base,” Mr Gallego told reporters as he hosted his first quarterly results.

IAG said it had cut cash operating costs by 54 per cent from original plans to €205 million per week during July-September, a vital move ahead of a winter with very low travel.

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Mr Gallego said he was looking to make more of IAG’s costs variable, rather than fixed, which could mean, for example, more flexible working contracts for staff.

He is being forced to act after France and Germany imposed new blanket lockdown measures. Any similar moves in Britain and Spain, IAG’s key markets, would spell further trouble for the group’s prospects.

Air France-KLM also warned of a further collapse in traffic due to the lockdowns as it reported a €1.05 billion loss on Friday.

Demand

Mr Gallego said that where routes opened IAG saw pent up demand for travel, and it continued to work with British and US authorities on a plan to allow testing to replace quarantine between London and New York.

The CEO took over from Willie Walsh in September after the company secured shareholder backing for a €2.74 billion capital hike to boost its finances.

Bernstein analyst Daniel Roeska said more action on costs was needed.

“Management will need to significantly lower monthly cash burn to avoid significantly depleting resources by next summer,” he said.

IAG, which also owns Iberia and Vueling, was publishing further details on its third quarter after it announced a worse-than-expected quarterly loss of €1.3 billion last week.

It said the total operating loss for the quarter was €1.9 billion, including exceptional items relating to fuel hedges and restructuring costs at Aer Lingus and British Airways . – Reuters