Aer Lingus owner says all of its airlines will need to shrink to survive

Newly retired IAG chief executive Willie Walsh told investors airlines will have to shrink their cost bases in order to compete in a post-Covid marketplace.

Aer Lingus owner IAG has said each of its airlines will have to shrink in size and cost base in order to compete in a “decimated” market brought on by the disruption caused by the spread of the Covid-19 pandemic.

IAG owns Aer Lingus, British Airways and Spanish carriers Iberia and Vueling.

Former group CEO Willie Walsh warned of the smaller operating models as he formally retired at IAG’s annual shareholders’ meeting. 

He has been replaced by Luis Gallego, an existing IAG executive and someone who Mr Walsh said he saw as being his “natural successor for several years”.

It [Covid] is the worst crisis we have ever faced, far worse than both 9/11 and the financial crash in 2008. 

We are having to re-calibrate everything we do as we anticipate that it will take until at least 2023 or 2024 for passenger demand to recover to 2019 levels,” Mr Walsh told shareholders.

IAG shareholders voted, almost unanimously, in favour of a rights issue that will raise €2.75bn to boost the group’s liquidity. 

They also approved a directors’ pay agreement, which will see Mr Walsh pocket a bonus of £883,000 (€985,000) for IAG’s 2019 performance.

IAG chairman Antonio Vázquez told investors the money raise is separate to IAG’s attempts to buy Spanish carrier Air Europa, a deal which it hopes to complete by early 2021.

Meanwhile, shares in UK airline EasyJet nosedived as much as 8% after the latest British curbs on international travel forced the carrier to slow the build-up of its summer flight schedule.

The airline, which had been planning to fly at 40% of normal capacity in its current fourth quarter, now expects to operate at slightly less than that.

Coronavirus cases are on the rise in some European countries including important holiday destinations like Greece, France and Spain.

EasyJet also dropped a forecast for a smaller loss this period than in the third quarter through June, when it had a shortfall of £324m (€361m). 

It will provide no financial guidance for the fiscal year starting next month.

“Demand is now likely to be further impacted and therefore lower than previously anticipated,” chief executive Johan Lundgren said.

“It is difficult to overstate the impact that the pandemic and associated government policies has had on the whole industry.”

- additional reporting: Bloomberg and Reuters