International Airlines Group (IAG) believes it has turned a corner in its recovery and plans to restore over 100% of its pre-pandemic capacity on North Atlantic routes by next summer.
British Airways (BA) expects to deploy 96% of its 2019 capacity on North Atlantic routes during that period, while Aer Lingus plans to grow to 101% of pre-pandemic levels, some of which includes the carrier’s new base at Manchester, England. Iberia plans to deploy 105% of its pre-crisis North Atlantic seats.
IAG has concluded that several airlines in the North Atlantic market have either reduced capacity or exited, CEO Luis Gallego said during a Nov. 5 earnings discussion. “Published schedules for the summer time period show capacity contracting,” Gallego explained. “I think that will scale as we get into [the 2022 third quarter (Q3)], but certainly in [the 2022 second quarter] and Q3, I think you see less premium and non-premium seats based on what people have published in and out of the London market.”
IAG is seeing a significant bump in bookings driven by the reopening of the U.S. to vaccinated travelers from numerous countries beginning Nov. 8. Gallego stated during the earnings discussion that bookings on North American routes were at nearly 100% of 2019 levels, while bookings on routes to Latin America and the Caribbean “were well over 100%.”
He explained that long-haul routes have been the main contributor to passenger revenue for BA and Iberia despite travel restrictions. During the third quarter, long-haul routes accounted for 60% of passenger revenue for both BA and Iberia, including 30% for BA and 10% for Iberia on North Atlantic routes.
“Long-haul traffic has been a significant driver of revenue, with bookings recovering faster than short-haul as we head into the winter,” Gallego reported. “Premium leisure is performing strongly at both Iberia and British Airways, and there are early signs of a recovery in business travel.”
IAG said load factors in the December quarter were strong across the North Atlantic, “and we see revenue beginning to converge to be more in line with capacity, which is very different to what we’ve seen in previous months during COVID.”
The company also sees promise in other long-haul markets opening up. “Other large markets that are reopening include Argentina and Brazil, which are important to Iberia; and India, South Africa and Singapore, which are important to British Airways,” Gallego explained.
As it works to capitalize on more markets reopening, IAG aims to deploy 60% of its 2019 capacity in the fourth quarter. But despite achieving a positive operating cash flow in Q3, IAG posted an operating loss of €485 million ($563 million), and projects a‹ €3 billion loss for 2021.
IAG forged a letter of intent (LOI) with Boeing in 2019 for roughly 200 737 MAX aircraft. While the LOI has not transitioned into firm orders, CFO Stephen Gunning noted that as IAG looks out into 2024 and 2025, “we are going to need some additional short-haul aircraft.”
Gunning acknowledged it was important to have strong competition between Airbus and Boeing, but also noted IAG thinks the “MAX is a very good aircraft.”
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