(Bloomberg) --
British Airways parent IAG SA will almost halve its planned expansion, reducing expected earnings growth, as it responds to slowing economies and a glut of seats that’s depressed prices.
IAG, which also owns Spain’s Iberia, Aer Lingus of Ireland and discount operators Vueling and Level, will now increase capacity by 3.4% a year in the 2020-2022 period, it said Friday. The previous target was 6% through 2023.
As a result, earnings per share will rise at a 10% pace instead of 12%, Chief Executive Officer Willie Walsh said in a capital markets day presentation. Capital spending will rise 80% to 4.7 billion euros ($5.2 billion).
IAG said Oct. 31 that full-year profit will be lower than forecast as it grapples with the impact of BA’s first pilot strike since 1979. Like other European carriers, IAG is seeking to rein in costs and bolster margins amid a slowing regional economy, diminishing fares and uncertainty surrounding Brexit.
Shares of IAG fell as much as 3.2% in London, where the company is based, and were trading 0.7% lower at 540.6 pence as of 3:39 p.m. local time. The stock has declined 6% this year.
Fleet Trimmed
Capacity growth for 2020 is currently planned to be 3.2%. That compares with 4% for this year, a figure that IAG had revised down earlier.
The changes will impact fleet plans, with IAG’s long-haul operations now due to feature 223 aircraft by 2022, 22 fewer than projected last year. That appears to have achieved partly by pushing back deliveries of Boeing Co. 777X planes, Jefferies International analyst Sandy Morris said in a note on the moves.
The short-haul division will number 398 jets, down 50 from 2018 estimates, after eliminating 74 mooted orders previously described as “to be decided.” The tally doesn’t include 200 Boeing 737 Max planes that IAG has an outline agreement to buy, since deliveries won’t begin until 2023.
IAG confirmed that the Max, currently grounded after two fatal crashes, will be used by BA’s London Gatwick arm and Vueling, and aims to diversify European operations away from Airbus SE to introduce competition for future orders.
The company retained its leverage and return on investment targets, as well as an operating margin goal of 12% to 15%.
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