Ukraine invasion and high oil prices threaten BA owner IAG’s recovery

London — British Airways-owner IAG cancelled flights to Moscow and pledged to avoid Russian airspace on Friday as the invasion of Ukraine and surging oil prices threatened its postpandemic return to profitability.

With passenger numbers edging nearer to 2019 levels, the group that also owns Aer Lingus, Iberia and Vueling vowed to bring an end to two consecutive years of multibillion-dollar losses with a return to profitability from the second quarter.

But as it published results it said the British flag carrier has suspended flights to Moscow and will not use Russian airspace, a move that can add significant costs as diverted planes fly south to avoid areas of tension in the Middle East.

Russia banned British airlines from using its airspace on Friday, a day after London banned Russian flag carrier Aeroflot. Other airlines are avoiding Russia, including Virgin Atlantic, on routes between Europe and Asia.

With oil prices back above $100 a barrel, IAG CEO Luis Gallego said the company is hedged against volatile crude prices for two years, with the first year about 60% hedged. He said the conflict in Ukraine could knock general customer confidence, particularly for Americans.

“The point of sale in the US can be affected because the people can be concerned that there is a war in Europe,” he said, adding the company has not seen any impact on bookings.

Minimal impact

The renewed gloom around an industry that has battled two years of travel restrictions that left planes grounded worldwide threatened to overshadow the signs of recovery at one of the biggest airline groups.

IAG said on Friday it expects passenger capacity to reach 85% of prepandemic levels this year, following a collapse to just 36% in 2021. And while the Omicron coronavirus variant affected bookings in January and February, it had only had a minimal impact on bookings for Easter and summer 2022.

The group reported a €2.97bn net loss in 2021, vs a €4.39bn loss in 2020.

“We are confident that a strong recovery is under way,” Gallego said, adding business travel has started to pick up, especially on transatlantic routes.

The group's forecast for a return to profitability assumes no further setbacks related to Covid-19 and travel restrictions or material impact from “recent geopolitical developments”.

Shares in IAG are down 19% over the last year. They fell 6% on Thursday after Russia's full invasion of Ukraine forced oil prices to jump back to 2014 levels on fears of supply disruption. They opened up on Friday before sliding back 1%.

IAG, which operates 533 aircraft, has been slower than some of its peers to recover from the pandemic, due to its exposure to the slow-to-open UK market, the long-shut UK-US route and smaller cargo unit.

Passenger capacity in the fourth quarter was 58% of 2019 levels, up from 43% in the third.

Reuters