Brexit dents IAG plans

IAG — which owns Aer Lingus, British Airways, and Iberia — trimmed growth plans for 2016 further and gave a cautious outlook for annual earnings, due to weaker trading and the slump in sterling after the British vote to leave the EU.

The EU referendum outcome has caused the value of the pound to fall versus the dollar and euro, making it more expensive for UK travellers, and prompting consumer and business uncertainty.

In addition, attacks in Europe and a failed coup in Turkey have hit demand for travel, prompting rival airlines easyJet, Lufthansa, and Air France-KLM to warn on the impact of political upheaval and security concerns.

IAG, which also includes Vueling, said it would cut its capacity growth to 4.5% this year, down from the 4.9% rise planned in April.

Chief executive Willie Walsh said the cuts would be across the group, which would look for opportunities to further trim growth later this year.

He said IAG was not planning similar capacity cuts in the UK to low-cost rival Ryanair. IAG said it was also putting 2017 capacity and capex plans under review, but Mr Walsh declined to comment further when asked for details.

Shares in the group, which have lost about a third of their value since the start of the year, rose 1.5% yesterday after the group said it expects 2016 underlying operating profit to rise by a “low double digit” percentage.

In February it had forecast it would grow 2016 profit by more than €900m — a 40% rise on last year.

IAG, which reports in euros but gets a third of its revenues from Britain, said its second- quarter results were hit by a negative currency effect of €148m, and that would also impact third-quarter results, usually the most profitable of the year due to the summer holiday season.

Mr Walsh said IAG had seen more subdued demand from business travellers in the run-up to the Brexit vote and this had continued since.

Surveys show consumer confidence has plunged since the vote, while companies are reviewing investment plans and jobs.

“It’s unclear when UK corporates will regain confidence in terms of travelling and doing business,” Mr Walsh told journalists.

“It will have to happen. Whether that’s later this year or early next year, we’ll have to wait and see.”

IAG reported underlying operating profit up 4.7% to €555m for the three months ended June 30, its second quarter, behind a consensus forecast of €562m.