In its latest full year operating profit guidance update, International Airlines Group’s (IAG) has indicated that the industrial action in September cost the airline an estimated total of €170 million and full year profits would decline by 6% as a result.
BALPA (British Airways main pilots’ union) had initially scheduled strikes for the 9, 10 and 27 September that led to an initial cancellation of 4,521 flights over a period of seven days. Subsequently, 2,196 flights were reinstated leaving 2,325 cancellations. British Airways also introduced flexible commercial policies on 4,070 flights not directly affected by the industrial action. Although these policies enabled customers to re-book flights or receive a refund, the cost to BA was significant. There were further disruption events affecting British Airways in the quarter, including threatened strikes by Heathrow Airport employees, which had a further net financial impact of €33 million.
IAG estimates that the latest booking trends in its low cost segments (primarily Vueling and LEVEL) will have an adverse financial impact of €45 million.
At current fuel prices and exchange rates, IAG therefore expects its 2019 operating profit before exceptional items to be €215 million lower than 2018 pro forma (€3,485 million).
In the update, CFO Steve Gunning stated that passenger unit revenue is expected to be slightly down at constant currency, compared to flat guidance previously, and non-fuel unit costs are expected to improve at constant currency, unchanged from previous guidance. Capacity growth, measured in ASKs, for the fourth quarter is now expected to be about 2%, which is 1.2 points below previous guidance, and full year capacity growth is expected to be about 4%, compared to 5% previously.
He confirmed that there have been no further talks between British Airways and BALPA, and that the airline’s offer of a 11.5% pay increase over three years still stands and has been accepted by British Airways’ other unions, representing 90% of the airline’s employees. “Clearly any further industrial action will additionally impact IAG’s full year 2019 operating profit,” he concluded.
In the analysts call, Willie Walsh, chief executive of IAG, commented that the European airline failures would be positive for IAG in the long run, reducing capacity in the market.
“We are seeing capacity coming out through the failures and most airlines are moderating capacity,” he said. “A number of smaller airlines are disappearing.”
IAG provides 2019 guidance update
