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British Airways-owner IAG loses over €7bn

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Oscar Williams-Grut
·Senior City Correspondent, Yahoo Finance UK
·3-min read
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File photo dated 30/11/06 of tail fins of British Airways' aircraft parked at Terminal One of Heathrow Airport. British Airways has boosted its liquidity by ??2.45 billion as it tries to weather the coronavirus pandemic. Issue date: Monday February 22, 2021.
British Airways' aircraft parked at Terminal One of Heathrow Airport. Photo: PA

IAG (IAG.L), the owner of airlines like British Airways, Aer Lingus, and Iberia, lost €7.8bn (£6.8bn, $9.5bn) last year as the COVID-19 pandemic ravaged the airline industry.

IAG said on Friday it made a pre-tax loss of €7.8bn on income of €7.9bn in 2020. The company made an operating loss before exceptional costs of €4.4bn, which was in-line with forecasts.

Revenue for the year was down 70% as passenger numbers slumped. IAG said it flew just a third of its 2019 capacity last year.

"Our results reflect the serious impact that COVID-19 has had on our business," chief executive Luis Gallego said. "We have taken effective action to preserve cash, boost liquidity and reduce our cost base.

"Despite this crisis, our liquidity remains strong. At 31 December, the Group's liquidity was €10.3bn including a successful €2.7bn capital increase and £2bn loan commitment from UKEF. This is higher than at the start of the pandemic."

WATCH: British Airways parent firm demands digital health passes to help reopen skies as it dives to £6.5bn loss

IAG lost €1.47bn in the fourth quarter of 2020, the company said, against expectations of a €1.2bn loss.

Shares rose more than 3% in London, bucking a wider downturn in the stock market.

"While these numbers are undoubtedly bad, they aren’t surprising either, given the damage wrought on the airline sector by the pandemic," said Michael Hewson, chief market analyst at CMC Markets.

IAG shares rose despite the historic loss. Photo: Yahoo Finance UK
IAG shares rose despite the historic loss. Photo: Yahoo Finance UK

COVID-19 forced IAG and other airlines to ground planes for much of last year. The International Air Transport Association (IATA) estimates carriers lost $118bn last year as demand across the sector sunk by 65%.

IAG raised €2.75bn from investors in July to bolster its balance sheet and secured another €3.4bn in funding at the end of the year. At the same time, the company launched a painful restructuring to cut costs, which included plans to axe 12,000 jobs at British Airways.

"We're transforming our business to ensure we emerge in a stronger competitive position," Gallego said.

IAG didn't provide a profit forecast for 2021 given continued uncertainty. The company said it expected first quarter passenger numbers to fall by 80% but this remains uncertain and "subject to review."

"The aviation industry stands with governments in putting public health at the top of the agenda," Gallego said. "Getting people travelling again will require a clear roadmap for unwinding current restrictions when the time is right.

"We know there is pent-up demand for travel and people want to fly. Vaccinations are progressing well and global infections are going in the right direction. We're calling for international common testing standards and the introduction of digital health passes to reopen our skies safely."

READ MORE: Targeted tax rises won't derail COVID recovery, UK chancellor told

While parts of Europe are beginning to consider routes out of lockdown, the prospect of international travel remains uncertain. The UK government said this week that a committee was assessing whether to allow overseas travel, with a verdict due on 12 April. Shares in IAG and other holiday companies rallied strongly on the back of the announcement.

Jack Winchester, an analyst at Third Bridge, and Hewson both said a rebound in business travel was crucial for IAG's recovery.

“Investors have been willing to plug IAG’s finances on the assumption of an eventual recovery, but when the dust settles we are likely to see that low cost carriers like Ryanair and Wizz Air have come out of 2020 in far better shape," said Wincheste.

IAG was the worst performing stock on the FTSE 100 in 2020.

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