Aer Lingus owner sees tourism boost offsetting Brexit fallout

IAG chief executive Willie Walsh says company will still report a profit this year

IAG chief executive Willie Walsh

IAG chief executive Willie Walsh

 

Aer Lingus owner IAG said a surge in inbound tourism to Britain spurred by a weaker pound should make up for softer demand for business travel following the UK’s decision to quit the European Union, dismissing the notion that people will stop flying as “nonsense.”

IAG doesn’t plan to eliminate jobs or move assets away from Britain in the wake of the Brexit vote, and there will be no significant capacity or fare cuts, chief executive Willie Walsh said in an interview.

“The UK now becomes more attractive for tourists,” he said. “Corporates were pausing on the uncertainty, and now we don’t expect them to bounce back as we would have expected had the vote been ‘Remain.’ In the long run, such demand effects tend to even out.”

IAG, Europe’s second-largest airline, lowered its 2016 earnings outlook Friday because of the likely impact of exchange-rate fluctuations, rather than concerns about a possible slump in sales, Mr Walsh said in the Belgian capital, where he was attending a meeting of the A4E industry group.

Kerosene Costs

“The principal impact will be currencies,” he said, adding that London-based IAG - which also owns Iberia and Vueling of Spain and Aer Lingus - will suffer a translation effect from converting sterling profits into euros, in which it reports.

“We are also short about $2 billion because we buy fuel in US dollars, so our fuel bill will be higher on the higher oil price and the weaker pound,” Mr Walsh said. “These effects are very technical, mechanical.”

According to IAG’s updated guidance, the company still expects operating profit to show “significant” growth this year, while failing to match 2015’s 70 percent increase, as previously targeted.

“We still will make record profits in 2016,” Mr Walsh said. “The demand environment continues to be healthy. Our strategy remains the same. Tactically, we’ll do some things differently.”

Stock Ends Fall

Some of the turmoil created in the airline industry by the vote might even create opportunities for consolidation, Mr Walshsaid, while declining to specify which companies he had in mind.

Shares of IAG, as International Consolidated Airlines Group is known, rebounded today, trading 5.2 per cent higher in London. The company’s market value has still fallen by £3.5 billion since the referendum, valuing it at£ 7.68 billion.

Mr Walsh said that he himself had backed “Remain” and that the victory for the “Leave” campaign means that “a vision of the UK trading without boundaries will now be difficult to deliver.”

While the debate was “a little bit toxic” and damaging to Britain’s reputation, he said that democracy had been served. “We’ve got to respect the decision and move on.”

Bloomberg

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