Darker clouds gather as IAG flies into eye of Covid storm

Results for the British Airways and Iberia owner are horrific – but things are going to get a lot worse still for the airline group

Planes flying towards a virus cell target
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The first Gulf war, 9/11, Sars, the financial crash, the eruption of the Eyjafjallajökull volcano in Iceland – the airline industry flies from one downturn to the next.

Yet, the current crop of bosses are in no doubt about where this one ranks. “The worst crisis in the industry’s history,” said newly appointed British Airways boss Sean Doyle last week.

The previous nadir was the global financial meltdown. But as Doyle pointed out, a quarterly loss of £309m going into 2009 almost looks tiny compared to the £711m of losses that BA chalked up in the second quarter of this year.

And yet even that figure was merely a taster of the pain to come: €6.2bn (£5.6bn) of pre-tax losses in the first nine months of the year at parent group IAG compared with a €2.3bn profit for the same period in 2019.

That’s a swing of €8.5bn, and there’s still another three months of the financial year to go. With most of its fleet grounded, and only a handful of planes taking to the skies each day, cash is dwindling at a rate of £205m a week, though less than management expected, one analyst was quick to point out.

Finding positives in such times is a stretch. Perhaps that explains the 2pc bounce in IAG’s share price in early trading. There is little else to cheer when it can’t even produce profit guidance for the current financial year.

Yet, with a second lockdown sweeping across Europe, and talk even of a third wave next year, this almost certainly isn’t as bad as it gets.

IAG’s horrific results are a reminder of the quadruple whammy that the sector is facing in the form of competition, climate change, Covid and government incompetence.

Amid the current chaos, it is easy to forget that airlines faced a bleak future before Covid. With the price of a flight abroad now equivalent to what you would pay to travel across London in a black cab, airlines were already struggling to make money. A record-breaking 23 carriers were permanently grounded in 2019.

Climate change has left airlines staring down the barrel of an existential crisis yet their sluggish adoption of clean technology compared to other heavily polluting corners of the economy such as the oil industry and carmakers, means they risk becoming environmental bogeymen. The costs of greening the fleet will be astronomical.

Still, despite the best efforts of campaigners to shame people into flying less, demand had at least held until the pandemic. But passenger numbers collapsed four fifths in the last quarter, and there is surely no prospect of a rebound with the world economy heading back into hibernation.

At this rate, BA could be reduced to flying a couple of Sopwith Camels between London and Paris whenever there’s a tailwind.

IAG boss Luis Gallego isn’t letting the Government escape its share of the blame, though. The airline’s current predicament has been exacerbated by “constantly changing restrictions”, he said.

And what about airport testing? Nine months into a global pandemic and there is still no proper regime in place. Gallego wants to see both pre-departure and post-flight testing. As he points out, there is plenty of “pent-up demand”.

Until then, expect more cost-cutting, despite a quarter of the workforce already being axed, and the possibility that IAG will have to raise more money next year, having only just squeezed £2.5bn out of shareholders earlier this month. Things will get a lot worse well before they get better.

Deltic needs a saviour

There can’t be many worse-hit industries than airlines. Pubs and restaurants are clinging on for dear life but at least there’s been some state support.

Nightclubs have had none and with dance floors out of bounds since March, time is finally running out for Deltic, which has 54 venues around the country.

Having burned through £1m a month during the pandemic, the firm expects to be bust before Christmas unless it can find a saviour. But with a second lockdown approaching, there is little prospect of its doors opening for the foreseeable future so prospective investors fear throwing good money after bad. It will take the bravest of souls to step in.