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It’s safe to say that BA and its parent company IAG have had a challenging 2020. In the six months to June 30th, the company announced a record operating loss of €1.37 billion before exceptional items, compared to a €960 million profit last year, with passenger traffic falling 98.4% over Q2. In addition, BA’s move to cut up to 12,000 jobs has prompted protests from unions and claims from a Commons transport select committee report that its actions were a ‘national disgrace’.

Throw into the mix a proposal to issue a further €2.75 billion worth of shares in order to raise cash - which would dilute current shareholders’ holdings by as much as 50% - and reports of investor revolt over chief executive Willie Walsh’s proposed £883,000 bonus, and the scene looks set for a fiery AGM today.

It’s been a bumpy ride for IAG, and for the aviation industry as a whole. The question on investors’ minds will be whether the final destination will be worth the price of the ticket.

When the going gets tough…

Executive bonuses aside, IAG’s measures have formed part of an aggressive policy of cost-cutting and fund-raising, resembling easyJet’s efforts to raise £450 million in share capital and Virgin Atlantic’s £1.2 billion rescue package.

Running an airline is a capital-intensive business, which at the best of times requires significant sums to survive. With those sums currently unavailable, companies are looking to shore up their balance sheets and dispose of debt. It’s in this context that Walsh explained the job-cuts: “Anybody who thinks these are short-term issues and challenges that can be resolved by short-term measures, I think fails to understand the scale of the challenge.”

Before the pandemic, IAG was a hugely profitable company and Walsh will hope that its aggressive cuts and fund-raising measures, though unpopular, will help restore his company to profits when the sector returns to normal. But therein lies the question - can the sector ever return to normal?

The future of air travel

IAG, perhaps more so than competitors, needs to keep its focus set on the long-term. With a model oriented toward international travel, BA is likely to take longer to recover than budget airlines like easyJet and Ryanair, who specialise in short-haul and domestic flights.

The future of business trips is also likely to play a larger part in BA’s story, with doubts raised over the need for international business travel in an age of online meetings. It’s important, however, to bear in mind the differences between day-to-day meetings hosted on Zoom and extraordinary international meetings, which never were explained by their efficiency. While Zoom has a legitimate claim to displace everyday office meetings going forward, the future of business travel is less clear.

But that’s not the only obstacle the industry faces. Questions were already hanging over airlines, many of which the pandemic has exacerbated - environmental concerns in particular look set to weigh down ever heavier on companies’ operating models.

And while the industry has been hit hard before, it’s clear that this is by far the largest crisis it has ever faced. As the graph below shows, when doubts arose in the aftermath of 9/11, it didn’t take long for consumer confidence to return and, ultimately, the industry was left largely unchanged. The drop off over 2020 has been far more dramatic and its legacy, we can assume, more lasting. A poll of 537 aviation professionals conducted in June found that while 89% believed the industry will survive, 69% feel it will be permanently changed.


Philip Balaam, president of Inmarsat Aviation, shed some light on what that change could look like. He said: “We believe that the crisis could prove a decisive moment for digital transformation in an industry that’s historically been behind the curve. Post COVID-19, we will see new leaders emerge because they took steps to enhance capabilities, some even unknowingly, ahead of the rest.”1

Even if it does take IAG longer than its competitors to recover, all are heading straight for an uncertain future. It’s one which is likely to punish the losers but reward those who can adapt. While IAG’s recent measures have one eye on survival, the other is set firmly on the company’s longer-term ambitions.

More on IAG



Important information:

Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. When you are thinking about investing in shares, it’s generally a good idea to consider holding them alongside other investments in a diversified portfolio of assets. Investors should note that the views expressed may no longer be current and may have already been acted upon. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.

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