British Airways owner IAG said a surge in inbound tourism spurred by a weaker pound should make up for softer demand for business travel following the UK’s decision to quit the European Union, dismissing the notion that people will stop flying as “nonsense.”
IAG doesn’t plan to eliminate jobs or move assets away from Britain in the wake of the Brexit vote, and there will be no significant capacity or fare cuts, Chief Executive Officer Willie Walsh said Tuesday in an interview in Brussels with Bloomberg Television.
“The UK now becomes more attractive for tourists,” he said. “Corporates were pausing on the uncertainty, and now we don’t expect them to bounce back as we would have expected had the vote been ‘Remain.’ In the long run, such demand effects tend to even out.”
IAG, Europe’s second-largest airline, lowered its 2016 earnings outlook Friday because of the likely impact of exchange-rate fluctuations, rather than concerns about a possible slump in sales, Walsh said in the Belgian capital, where he was attending a meeting of the A4E industry group.
Kerosene Costs
“The principal impact will be currencies,” he said, adding that London-based IAG -- which also owns Iberia and Vueling of Spain and Ireland’s Aer Lingus -- will suffer a translation effect from converting sterling profits into euros, in which it reports.
“We are also short about $2 billion because we buy fuel in U.S dollars, so our fuel bill will be higher on the higher oil price and the weaker pound,” Walsh said. “These effects are very technical, mechanical.”
According to IAG’s updated guidance, the company still expects operating profit to show “significant” growth this year, while failing to match 2015’s 70 percent increase, as previously targeted.
“We still will make record profits in 2016,” Walsh said. “The demand environment continues to be healthy. Our strategy remains the same. Tactically, we’ll do some things differently.”
Stock Ends Fall
Some of the turmoil created in the airline industry by the U.K. vote might even create opportunities for consolidation, the CEO said, while declining to specify which companies he had in mind.
Shares of IAG, as International Consolidated Airlines Group SA is known, rebounded today, trading 5.2 percent higher as of 10:55 a.m. in London. The company’s market value has still fallen by 3.5 billion pounds ($4.7 billion) since the referendum, valuing it at 7.68 billion pounds.
Walsh, who as an Irishman living in the U.K. was entitled to vote under the referendum rules, said that he himself had backed “Remain” and that the victory for the “Leave” campaign means that “a vision of the K. trading without boundaries will now be difficult to deliver.”
While the debate was “a little bit toxic” and damaging to Britain’s reputation, he said that democracy had been served. “We’ve got to respect the decision and move on.”
News by Bloomberg, edited by Hospitality Ireland
