European airlines drop 2020 earnings guidance

British Airways planes sit on the apron at Bournemouth airport in southern England on May 6, 2020.


A number of European airlines have dropped their financial guidance for the year, as the ongoing coronavirus pandemic creates widespread uncertainty about when business will return to normal.

IAG — the parent company of British Airways, Vueling and Iberia — and AirFrance-KLM said Thursday that there was a high level of uncertainty about the duration of the global health crisis and the consequent economic crisis. As a result, both companies withdrew their earnings forecasts for the year.

AirFrance-KLM reported a net loss of 1.8 million euros ($1.95 million) for the first three months of the year on Thursday, down from a loss of 324 million euros over the same period last year. IAG, meanwhile, reported a net loss of 1.7 million euros for the quarter, down from a profit of 70 million euros in 2019.

Both companies said their second-quarter performance would be even worse than the first quarter.

“We are planning for a meaningful return to service in July 2020 at the earliest, depending on the easing of lockdowns and travel restrictions around the world,” Willie Walsh, IAG chief executive officer, said in a statement Wednesday.

“However, we do not expect passenger demand to recover to the level of 2019 before 2023 at the earliest,” he added.

AirFrance-KLM also warned that it will take “several years” to return to pre-virus passenger demand. 

The International Air Transport Association (IATA) said that demand for European carriers dropped by 54.3% in March from a year ago. However, passenger demand could be even lower for the month of April, given that strict lockdown measures were mostly introduced mid-March.

A number of European governments have started tentatively lifting some restrictions this month. However, the European Union has a temporary ban on travel from outside the bloc lasting until at least May 15.

 A spokesperson for the European Commission told CNBC that the travel restriction “can be extended based on epidemiological considerations. We will communicate on this in advance of the 15 May deadline.” 

The European Commission had previously warned that European airlines could see revenue losses of up to 90% in 2020, from the previous year.

Shares of AirFrance-KLM have dropped almost 60% since the start of the year, while IAG’s have fallen almost 70% in the same period.

Airport operators have also raised concerns about their business.

ACI Europe, an association of 500 European airports, has forecast revenue losses of 14 billion euros this year for operators alone. The estimation doesn’t include third-party businesses, such as coffee and magazine shops, which are dependent on airport activity. The association also assumed that travel restrictions would begin to be lifted at the end of April, which hasn’t happened, indicating that revenue losses are likely to be higher than 14 billion euros forecast.

Impact on tourism

Problems in the travel sector lead to issues in the tourism industry as well. The latter constitutes 11% of the EU’s gross domestic product, however tourism businesses don’t know when they will be able to resume their activities in full and whether international visitors will be allowed to travel.

Speaking to CNBC Thursday, Eduardo Santander, executive general at the European Travel Commission, said European countries needed to coordinate their strategies to avoid further uncertainty across the industry.

Asked if the tourism sector could shrink in the aftermath of the pandemic, he said businesses needed to use this moment to become more environmentally friendly. 

“People will start asking themselves, before they book their holidays, what is going to be the impact, not just from an environmental point of view, but also what they are doing for local communities,” he said.

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