British Airways owner issues profit warning over soaring jet fuel costs | British Airways
British Airways’ parent company has issued a profit warning and said it expects to spend around €2bn (£1.72bn) more on fuel this year than planned because of the Iran war.
International Airlines Group (IAG), which also owns Aer Lingus, Iberia and Vueling, said it had maintained 70% of its expected fuel usage for this year and costs were expected to be around €9 billion, down from a previous estimate of €7.1 billion.
The company said it expects to offset about 60% of higher fuel costs this year through “revenue and cost management actions.”
“We are actively managing the uncertainty created by the fuel price increase and its impact, and taking the necessary measures regarding efficiency, costs and capacity,” said IAG CEO Luis Gallego. “The impact of higher fuel prices will inevitably lead to lower profits this year than we initially expected.”
Global oil prices, which were at $72 just before the conflict began, peaked at $126 per barrel as the conflict continued to put pressure on markets. On Friday, oil was trading just above $100 a barrel.
Speaking as IAG reported on first-quarter trading, Gallego added that IAG does not currently see any issues with fuel availability in its key markets and remains confident about fuel availability throughout the busy summer period.
However, according to data released by Cirium earlier this week, 2 million airline seats were dropped from this month’s schedules across the industry as airlines rearranged their operations due to rising jet fuel prices.
There will be around 13,000 fewer flights worldwide in May following the latest cancellations.
But at London Heathrow, British Airways’ home base, only a net 111 flights disappeared from the schedule.
UK airlines have said they could have more flexibility to combine flights on popular routes if necessary over the weekend, amid fears that jet fuel shortages could lead to more cancellations in the summer.
International organizations predict that Europe will face jet fuel shortages if the war in the Middle East continues to disrupt supplies.
“If the current conflict continues to restrict the flow of both crude oil and
“There is the potential for jet fuel and jet fuel supplies from the Middle East to be restricted on a global basis,” IAG said.
The company said it was working with governments on the issue.
Britain, as Europe’s largest net importer of jet fuel, is the country hardest hit, with low inventory, high import dependence and declining domestic refining capacity for jet fuel, analysts at Goldman Sachs said in a research note published Monday.
He said UK stocks “could fall to critically low levels, raising the possibility of rationing measures”.
IAG said it was seeing “strong demand in most of our markets” but saw “softness in demand” in the Eastern Mediterranean.
The company reported pre-tax profits of €422 million in the three months to the end of March, up 77% on the same period the previous year. Revenue rose 1.9% to €7.2 billion.
IAG’s shares fell nearly 5% in early trading on Friday, making it one of the biggest decliners on the FTSE 100.
