British Airways chief executive Willie Walsh warns airline growth will slow

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Willie Walsh, chief executive of British Airways owner IAG, today said he predicted airline capacity growth would slow to 2% to 3% in 2020 in the face of global economic stormclouds.

Given that he recently warned IAG’s capacity for this year would turn out to be about 4% compared with the previous plan of 5%, his words are bound to fuel speculation he is softening up the market for a bigger cut next year.

Asked if he thought the industry as a whole would slow to 2%-3%, he said: “That sounds about right, and it’s down to the economy.”

All eyes in the City will be on his update to IAG’s key capacity number on 8 November, when he hosts a capital markets day for investors. Walsh refused to reveal the number in advance but said: “I am clear growth in 2020 will be less than we had originally put out and that reflects the global conditions.”

In the face of weak economies, airlines are slowing expansion to prevent ticket prices falling. This can involve retiring older planes or ordering fewer new ones.

Analyst Daniel Roeska at broker Bernstein said Walsh was right to be eyeing capacity crimps: “In this sluggish economy you want to grow as slowly as possible to protect your prices.”

He predicted Walsh would now cut his 2020 predictions to 3%.

Capacity is coming out of the industry anyway as a flurry of airlines have gone bust, Walsh said, from France’s Aigle Azur and XL to Monarch and Thomas Cook in the UK. Norwegian, meanwhile, has cut flights in Europe this year by 20% against an increase before of 10-15%. “That’s a huge swing,” said Walsh.

“They may be small,” he said of the firms going bust,  “but some are meaningful,” he said.

The two Paris collapses were potentially useful for IAG. Aigle Azur has attractive take off and landing slots at Orly airport.

“We will see more smaller airlines in financial distress,” Walsh predicted.

While citing the usual culprits of weaker economies and high fuel prices, he stressed the under-reported significance of credit cards being far tougher on weaker airline clients. Card companies had been repeatedly burned by having to make refunds to customers of bust airlines and were demanding bigger deposits to protect themselves.

“They’re becoming far more risk averse than before,” said Walsh. 

The Evening Standard reported last week on how payment processing companies were also becoming increasingly wary of the sector.

On Brexit, Walsh said his airlines had not been as badly affected as EasyJet or Ryanair because of its relatively higher exposure to London, where the economy has been more resilient. “London is just different to the rest of the UK,” he said. He repeated that IAG is factoring into its projections that a no-deal Brexit would make the economy “slightly weaker” than a negotiated exit with a transition period.

However, he said: “Whatever happens, you deal with the implications at the time. We operate in parts of the world where there is even more political uncertainty than Brexit.”

On Heathrow’s planned third runway, he said the project faced a bigger challenge today than it was a year ago due to the financial and environmental costs. “Two years ago I would have said it was 60-40 that it would go ahead. Now I’m probably 60-40 the other way.”

“Heathrow is incapable of doing that third runway in a way that makes financial sense,” he said.

Source Article from https://www.standard.co.uk/business/british-airways-chief-executive-willie-walsh-warns-airline-growth-will-slow-a4259491.html

October 11, 2019 |
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