IAG says profit will undershoot by €215m on pilot strikes and lower demand

Aer Lingus owner IAG warned that challenges facing the European airline industry are set to continue into 2020 after cutting profit guidance for this year.

Earnings will be about 6 per cent lower than forecast in the wake of strikes at British Airways, its biggest unit, and depressed ticket prices at low-cost operations Vueling and Level.

IAG lowered capacity growth in the final quarter and will provide details in November of a decrease next year, chief executive Willie Walsh said on a call with analysts on Thursday.

Its British Airways unit suffered a net financial cost of €137 million as three days of strikes by pilots caused major disruptions to schedules.

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Further disruption of BA operaitons, including threatened strikes by Heathrow Airport employees, a further net financial impact of €33 million, the airline said.

There have been no further talks between British Airways and the main pilots union, and its most recent offer of an 11.5 per cent pay increase over three years still stands, IAG said.

It added that latest booking trends in its low cost segments are likely to lead to a €45 million hit.

“At current fuel prices and exchange rates, IAG therefore expects its 2019 operating profit before exceptional items to be €215 million lower than 2018”, when it reported profit of €3.5 billion.

The gloomier outlook provides further evidence of tribulations in the travel industry as a European economic slowdown gathers pace. UK tour operator and airline Thomas Cook collapsed this week, while eight other European carriers have folded within a little more than a year. In addition to the dispute with pilots, IAG is facing persistent overcapacity in Europe and a fluctuation in fuel prices.

“Most airlines are moderating their capacity-growth plans,” said Walsh, adding that more bankruptcies are likely to follow Thomas Cook’s demise. “A number of airlines, weaker ones, are either disappearing or significantly reducing capacity.”

At IAG, full-year capacity growth is expected to be about 4 per cent, compared with an earlier forecast of 5per cent. – Bloomberg