British Airways Seeks U.S. Boost to Help Counter Brexit Woesby
IAG unit’s dollar sales worth more following pound’s decline
Trans-Atlantic prices could increase as rivals cut capacity
British Airways is betting on a trans-Atlantic boost from the weaker pound to help offset the negative impacts of the U.K.’s Brexit vote.
BA’s dollar bookings will be worth more following sterling’s near 20 percent decline against the U.S. currency, while there’s scope for higher fares as U.S. carriers rein in capacity, Willie Walsh, chief executive officer of its parent company IAG SA, said Friday.
“With the reduction in capacity that we’re seeing our competitors take, I think that’s an indication of a more positive environment,” Walsh said on an analyst call. “I’d expect that to continue through into 2017. It’s a margin opportunity.”
U.S. operators could also lift the price of tickets sold in the U.K. to compensate for the lower value of their sterling sales, providing BA with further headroom to increase prices.
IAG rose 7.5 percent and was trading up 6.4 percent at 439.9 pence as of 4:01 p.m. in London after reporting a third-quarter operating profit of 1.21 billion euros ($1.32 billion) and forecasting full-year figure of 2.5 billion euros, both matching analyst estimates. That cuts the stock’s decline since the Brexit poll to 16 percent and values the business at 9.4 billion pounds ($11.5 billion).
“The weak pound improves BA’s cost competitiveness as it particularly competes with dollar-based U.S. carriers who have not seen the currency impact on their cost base but have seen the impact on their revenue base,” Walsh said, likening the carrier to “an exporter.”
U.S. carriers including Delta Air Lines Inc., United Continental Holdings Inc. and Southwest Airlines Co. have started to increase ticket prices on domestic and international routes in a bid to reverse more than 18 months of depressed fares across the industry as growth outpaced demand. BA operates its trans-Atlantic business as an antitrust immune joint venture with American Airlines Group Inc., Finnair Oyj and sister company Iberia, which means that the four share revenue and are allowed to coordinate prices and timetables.
British Airways is also planning to rein in capacity on over-supplied North American routes while looking to open up some new destinations, including New Orleans, which it will serve from London Heathrow four times a week from March, and Fort Lauderdale, Florida, which will get three flights a week from London Gatwick starting in July.
IAG, which is based in London but reports in euros, is seeking to claw back currency losses after the pound’s slide versus the European single currency wiped 372 million euros from operating profit in the first nine months.
Sterling has slumped 14.6 percent against the euro since Britain’s June 23 vote to quit the EU, and is down 18 percent versus the dollar.
Walsh also said Friday that he anticipates non-fuel costs at British Airways to “see a very significant improvement” in the current quarter as Alex Cruz, BA’s new chief, works on paring expenses. Further details will be provided at IAG’s annual investor day on Nov. 4.
The plan could deliver savings of 300 million apiece in terms of personnel and engineering costs, Goodbody analysts Mark Simpson and Jack Diskin estimated in a note to clients following the analyst briefing.