British Airways will slash its workforce by almost 30% in a painful restructuring aimed at shrinking the airline group to make it through a downturn that could last for years.
As many as 12,000 jobs will be lost, while a US$1.4bn charge from fuel and currency hedges added to the group’s first-quarter operating loss – and with its planes on the ground, BA parent IAG said operating results are likely to be “significantly worse” in the current period because the virus has pushed down demand.
BA, which has already placed 22,626 workers on its furlough plan, will now start discussions with labor groups on permanent reductions.
The harsh steps are likely to be repeated by other airlines in days and weeks to come, after flight restrictions aimed at fighting the coronavirus threw the industry into its steepest downturn ever. Carriers are in desperate need of cash, with peers such as Air France-KLM and Lufthansa chasing multibillion-euro bailouts. IAG has so far avoided tapping government-supported fundraising plans.
“In the last few weeks, the outlook for the aviation industry has worsened further and we must take action now,” British Airways Chief Executive Officer Alex Cruz said in a letter to employees. “Any money we borrow now will only be short-term and will not address the longer-term challenges we will face.”
Fatal mix for airlines as travel slump meets oil price drop
Like other European carriers, British Airways was hit with a double-whammy from fuel-hedging contracts that failed to protect it against the sudden drop in oil prices.
European airlines typically hedge most of their fuel costs to protect against a sudden jump in one of their biggest expenses. But because of the way some of the contracts are structured, the unexpected drop has forced many of them to hand cash over to banks even as many ask governments for multibillion euro taxpayer bailouts.
Lufthansa and Ryanair have already said they’ve lost money on hedging contracts, with more revelations expected with quarterly results.
IAG doesn’t expect passenger demand to recover to 2019 levels for “several years.” The company said its operating loss before exceptional items was €535 million in the period ended March 31.
Now its fleet is almost fully grounded, sapping revenue further. With cash and undrawn credit lines totaling €9.5 billion, the carrier is undertaking painful cuts to stretch its resources during the downturn.
Shares of IAG have declined 65% so far this year, giving it a market value of US$5.4 billion.
The job cuts are also a blow for the U.K. government, which is paying part of the wages of furloughed workers in the hope of preventing a sharp spike in unemployment as the country remains in lockdown. Britain’s economy will contract by 7.6% this year, the biggest annual fall since 1921, according to Dan Hanson of Bloomberg Economics.
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