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New IAG boss warns of more cuts as COVID crisis drags on

Sarah Young
·2-min read
FILE PHOTO: British Airways aircraft stationary on the tarmac of London's Heathrow Airport in west London

New IAG boss warns of more cuts as COVID crisis drags on

FILE PHOTO: British Airways aircraft stationary on the tarmac of London's Heathrow Airport in west London

By Sarah Young

LONDON (Reuters) - The new boss of British Airways-owner IAG <ICAG.L> warned he may have to strip even more costs from the business as a second wave of COVID-19 leaves its airlines staring at a bleak winter with very little travel.

Forecasting fourth-quarter capacity at just 30% of 2019 levels, IAG also stepped up its demand for governments to adopt pre-departure testing to allow quarantine-free travel as Europe locks down once again.

"Talking about my priorities, I think first of all we need to continue with the restructuring process that we have in place, we need to continue reducing our cost base," Luis Gallego told reporters as he hosted his first quarterly results.

IAG said it had cut cash operating costs by 54% from original plans to 205 million euros ($242 million) per week during July-September, a vital move ahead of a winter with very low travel.

Gallego said he was looking to make more of IAG's costs variable, rather than fixed, which could mean, for example, more flexible working contracts for staff.

He is being forced to act after France and Germany imposed new blanket lockdown measures. Any similar moves in Britain and Spain, IAG's key markets, would spell further trouble for the group's prospects.

"What we see is where we have lockdown, we have a direct impact in the number of bookings and revenue intake," Gallego said.

Air France-KLM <AIRF.PA> also warned of a further collapse in traffic due to the lockdowns as it reported a 1.05 billion euro loss on Friday.

Shares in IAG, which have lost 78% of their value this year, were up 1% at 92 pence at 0915 GMT.

Gallego said that where routes opened IAG saw pent up demand for travel and it continued to work with UK and U.S. authorities on a plan to allow testing to replace quarantine between London and New York.

The CEO took over from Willie Walsh in September after the company secured shareholder backing for a 2.74 billion euro capital hike to boost its finances.

Bernstein analyst Daniel Roeska said more action on costs was needed.

"Management will need to significantly lower monthly cash burn to avoid significantly depleting resources by next summer," he said.

IAG, which also owns Iberia, Aer Lingus and Vueling, was publishing further details on its third quarter after it announced a worse than expected quarterly loss of 1.3 billion euros last week.

It said the total operating loss for the quarter was 1.9 billion euros, including exceptional items relating to fuel hedges and restructuring costs at British Airways (BA) and Aer Lingus. Staff numbers have already been cut by 10,000 at the two airlines, with most of the reductions at BA.

(Reporting by Sarah Young; editing by Kate Holton and Mark Potter)