Coronavirus: British Airways hits turbulence as pandemic fears stalk airline industry

Shares in IAG, which owns the UK's national carrier, were trading 10 per cent lower before Monday's close

A British Airways Boeing 747-400 comes in to land at Heathrow airport in London. Reuters

British Airways (BA) is feeling the effects of the coronavirus outbreak with the owner of the UK’s national carrier IAG having cancelled all flights to China until April and witnessing declining passenger numbers.

The operator, which also owns Spain’s Iberia airline, has seen its share price come under sever pressure as a result. IAG ended last week the biggest loser in the FTSE 100, down 24.8 per cent. Its share price dropped a further 10 per cent to £4.29 (Dh20.12) just prior to the market's close in London on Monday.

The virus has caused airlines across the globe to suspend routes to destinations in Europe and Asia, due to forced cancellations or low passenger demand.

Willie Walsh, IAG’s outgoing chief executive, warned on Friday that the company’s earnings outlook had been “adversely affected” by the outbreak of Covid-19, which has killed more than 3,000 people worldwide.

Mr Walsh said IAG would not be able to issue profit guidance for 2020.

He said flights to Italy, which reported a 50 per cent rise in cases over the weekend, were experiencing a high rate of no-shows. “It’s north, south, east, west of Italy – I don’t think people are differentiating between the region that has been quarantined or anything else.”

More than 50 roundtrip flights have been cancelled from London Heathrow and Gatwick to cities in northern Italy between March 14 and March 28.

Some passengers reported being on almost empty BA flights, while others have had their flights changed by the carrier.

Passengers travelling to destinations such as Japan, which has closed schools and tourist attractions due to the virus, expressed concern that their flights were not eligible for refunds.

In the UK, health authorities warned that widespread transmission of the virus was highly likely as the reported number of cases had risen to 36 by Monday.

A hotel near Heathrow Airport has been block-booked by the UK Department of Health to be used as a quarantine facility in case more affected people arrive in the UK.

While IAG’s share price woes are likely to continue for now, the company should be able to weather the storm, according to William Ryder, Equity Analyst at financial services company Hargreaves Lansdown.

"Airlines have large fixed costs, so even a temporary decrease in revenue can hit profit really hard. Additionally, this is an important booking period, so the impact may be more prolonged," he told The National.

“We don’t think coronavirus is a mortal threat to IAG, although it could easily knock out some of the industry’s weaker players. Ironically, this may ease competitive pressure going forwards. We still expect a hit to earnings in the short term, though.”

BA is not the only airline to suffer from the coronavirus outbreak. British carrier Easyjet announced last week it was cancelling hundreds of flights and imposing a pay freeze to cut costs. The budget airline said it had seen a “significant softening of demand” as a result of the high number of coronavirus cases in northern Italy.

Hong Kong airline Cathay Pacific, meanwhile, has reportedly cut 75 per cent of its flights throughout March and grounded 120 out of 152 of its aircraft.

Covid-19 appears to be affecting Cathay Pacific more than in the 2003 Sars outbreak when the airline reduced its flights by 45 per cent and grounded 25 per cent of its aircraft

“It’s hard to isolate the effects of virus outbreaks. Swine Flu hit during the recovery from the financial crisis, and we’re now well past a Sars-level outbreak. Coronavirus is now a significantly worse outbreak than Sars,” said Mr Ryder.

However, he added: “Airlines have faced crises before though, and the industry will almost certainly recover.”