Friday 7 May 2021 9:16 am

Analysts warn British Airways’ fortunes are tied to lucrative London to New York route

British Airways owner IAG today said it is “ready to fly” but is pinning its hopes on urgent government action after tumbling to a €1.1bn loss in the first quarter.

IAG’s fate lies heavily in the hands of reopening the profitable London to New York business travel market, according to analysts.

Passenger capacity for the first three months of the year was 19.6 per cent of 2019 due to government restrictions and quarantine requirements.

IAG hopes to push passenger numbers up to around 25 per cent of the 2019 capacity in the next quarter, but uncertainties remain.

Hopes ‘pinned’ on US travel corridor

Michael Hewson, chief market analyst at CMC Markets, said that despite some progress this year, IAG’s shares have struggled to gain much in the way of altitude.

“Today’s first quarter update looks set to heap further gloom on its second quarter prospects. Further delays will only put further strain on its finances.

“The recent talk of a US-UK travel corridor for vaccinated people is very welcome news if it comes to pass, and it is here that IAG will be pinning a lot of its hopes.”

Cargo flights soften blow

IAG eased the blow of low passenger numbers by ramping up its cargo-only flights. A record total of 1,306 in the first quarter produced £350m in revenue.

The company said it reduced weekly cash burn to €175m, a better performance than previous guidance of €185m. Meanwhile, it had strong liquidity of €10.5bn at the end of the first quarter.

Susannah Streeter, market analyst at Hargreaves Lansdown, said that the cargo movement provides “a good dose of medicine” but only slightly softens the pain of an 88.4 per cent drop in revenue from passenger flights.

“IAG is still in emergency mode, battening down the hatches as global travel remains in limbo, pushing bookings to a fraction of usual levels.

“The British Airways owner can do little but hold on tight through the continued turbulence and hope government policy will allow it to navigate out of the crisis.”

Revenues may not recover until 2026

Consensus estimates predict IAG’s revenues will not reach 2019 levels again until 2026 and business travel is likely to be depressed for even longer.

The two big questions for IAG, according to Third Bridge analyst Jack Winchester, is when the world will start flying again and how soon business travel can recover.

“IAG’s fortunes are especially tied to a very profitable US-UK business travel market and this is going to suffer so long as cash-conscious companies make Zoom calls central to how they do business.

“In the shorter term, a lot will hinge on what the UK government deems as appropriate ‘traffic light’ designations in key markets such as Spain.”