Covid-19: Aer Lingus parent cuts capacity, unable to provide guidance

IAG says it is seeing weaker demand and cutting capacity on some routes

Aer Lingus saw increases in capacity on routes to San Francisco, Seattle and Philadelphia. Photograph: Dara Mac Dónaill

Aer Lingus saw increases in capacity on routes to San Francisco, Seattle and Philadelphia. Photograph: Dara Mac Dónaill

 

Aer Lingus parent IAG has said that uncertainty over the impact of the coronavirus outbreak means it is unable to give accurate guidance on its future financial performance.

International Airlines Group (IAG), which owns Aer Lingus as well as British Airways, Iberia and Vueling, said on Friday it was experiencing weakening demand on European and Asian flights, in the wake of the spread of Covid-19.

Shares in the group were trading nearly 4 per cent lower at midday, having lost as much as 6.5 per cent earlier in the day. The slump came as IAG said it was reducing capacity on the back of the spread of the coronavirus, which is now present in more than 50 countries.

IAG said its earnings outlook was “adversely affected by weaker demand” as a result of Covid-19.

“We are currently experiencing demand weakness on Asian and European routes and a weakening of business travel across our network resulting from the cancellation of industry events and corporate travel restrictions,” it said.

EasyJet on Friday also announced plans to reduce capacity on some routes due to the coronavirus.

But rival Ryanair has so far said it continued to operate as normal. “There is currently no change to advice for airlines. Our flights are operating as normal and all our terms and conditions apply,” a spokesman for the airline said.

“We will continue to monitor the situation and follow all public health instructions that are issued,” he added.

IAG said some of the freed-up long-haul capacity was being redeployed to routes with stronger demand.

“Capacity on Italian routes for March has been significantly reduced through a combination of cancellations and change of aircraft gauge and further capacity reductions will be activated over the coming days.

“We also expect to make some capacity reductions across our wider short-haul network. Short haul capacity is not being redeployed at this stage.”

IAG said the net impact of current flight cancellations and redeployed capacity was to lower its full year 2020 planned capacity by about 1 per cent in terms of available seat kilometres to 2 per cent for the year.

Aer Lingus

Aer Lingus’ operating profit fell 11.3 per cent – or €35 million – to €276 million last year, its parent said. Revenue at Aer Lingus increased to €2.1 billion in 2019 from €2 billion in 2018. Earnings before interest, taxes, depreciation and amortisation totalled €406 million, which was a reduction of 9.6 per cent.

The airline held cash of €580 million, which was down from €891 at the end of 2018.

IAG’s full-year results showed capacity at Aer Lingus increased 4.2 per cent from the addition of a new route connecting Dublin and Minneapolis, as well as increases in capacity to San Francisco, Seattle and Philadelphia.

Aer Lingus’ operating margin was 2.5 points lower at 13 per cent. Passenger unit revenues were up, with “strong long-haul performance” and “positive retail performance, despite challenging European market conditions”.

Aer Lingus non-fuel unit costs were up, primarily driven by increased maintenance and handling costs as well as pay inflation increases, partially offset by continued “cost saving initiatives and efficient growth”.

In terms of IAG overall, profit after tax before exceptional items was €2.4 billion, which was down 1.4 per cent. Its operating profit was €3.3 billion, which was down from €3.5 billion in 2018.

“Our operating companies will continue to take mitigating actions to better match supply to demand in line with the evolving situation,” it said. “Cost and revenue initiatives are being implemented across the business.”

Chief executive Willie Walsh, presenting his last set of results, said performance was “good” in a year affected by disruption and higher fuel prices.