British Airways Still in Covid Fog as Summer Comes to Air France

British Airways parent IAG SA is stuck on the starting blocks amid lingering coronavirus curbs as one of its biggest European competitors reaps the benefits of a late-summer travel rebound.

London-based IAG, which also owns Spain’s Iberia and Aer Lingus of Ireland, provided no guidance in an earnings update Friday and said it will offer only 45% of 2019 capacity this quarter. Rival Air France-KLM, by contrast, plans to fly up to 70% of its usual seats and said it’s set for a return to profit.

British Airways, usually IAG’s biggest profit generator, has suffered from tougher U.K. travel restrictions even as a reopening in the European Union spurs traffic at Air France and discounters like Ryanair Holdings Plc. While curbs have begun to ease, the late start has taken its toll. The U.S. border meanwhile remains closed for the whole of Europe, hurting all network airlines and especially BA, for which the North Atlantic has been particularly lucrative.

Sanford C. Bernstein analyst Daniel Roeska said in a note that a more extensive U.S. reopening is the “important catalyst” that IAG is missing. Air France-KLM’s operational recovery, by contrast, is ahead of expectations, with occupancy levels “looking quite respectable.”

Shares of IAG traded 6.9% lower at 169.04 pence as of 11:01 a.m. in London for their biggest drop in 2 1/2 months. Air France-KLM was down 1.5% after gaining earlier.

‘Fantastic Sales’

IAG reported a second-quarter adjusted operating loss of 1.05 billion euros ($1.3 billion) that was slightly worse than analysts had predicted.

Air France-KLM’s 248 million-euro loss before interest, taxes, depreciation and amortization was ahead of estimates and should turn into a profit this quarter, according to the company. Chief Financial Officer Steven Zaat said “fantastic ticket sales” have halted cash outflows.

British Airways Still in Covid Fog as Summer Comes to Air France

Low-cost carriers have also been upbeat about summer prospects, with Ryanair saying it expects to post a profit and Wizz Air Holdings Plc on course to be the first major European airline to return capacity to 100% of pre-Covid levels.

IAG Chief Executive Officer Luis Gallego attributed the difference to his company’s strong focus on North and South Atlantic services, though the easing of travel restrictions on some Latin American long-haul routes contributed to Iberia -- along with discounter Vueling -- being the group’s best quarterly performer.

Bright Spots

He said there are some bright spots, with Spanish domestic capacity ahead of 2019 and BA’s top leisure destinations also thriving. Group-wide capacity could be raised to 75% of the normal level in the fourth quarter if restrictions permit, though that’s not currently expected.

BA got a partial reprieve this week with news that fully vaccinated arrivals from the U.S. and European Union need no longer self-isolate in England from Aug. 2. Yet the Biden administration has maintained border closures and isn’t expected to ease them any time soon.

Frequently modified U.K. rules have also discouraged people from making short-haul journeys. Changes introduced this month finally opened up quarantine-free travel to more than 100 medium-risk locations for Britons with two Covid shots.

The U.K.’s Times newspaper reported Friday that Prime Minister Boris Johnson’s government is looking at lifting quarantine requirements for vaccinated arrivals France but could put Spain, Italy and Canada onto its “amber watch list,”a move that could preface new curbs.

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