International Consolidated Airlines Group (LSE:IAG) SA rallied strongly on Friday ahead of the reopening of transatlantic routes.
The US is reopening its borders to vaccinated travellers from the EU and UK from 8 November.
READ: British Airways owner IAG predicts EUR3bn full-year loss but hopes to return to profit next year
The British Airways owner, which also has Aer Lingus, Iberia and Vueling on its portfolio, is more reliant on travel between the UK and the US compared to its competitors, so it saw limited recovery last summer.
In fact, it forecast operating losses before exceptionals of around EUR3bn for 2021, though it hopes to return in the black next year.
“We are very optimistic and I think we are going to have 100% of the capacity that we flew in 2019 next summer,” chief executive Luis Gallego told Reuters commenting on transatlantic routes.
“When we can operate our flights, we are going to come back soon to a profitable situation.”
The FTSE 100 group has been grappling with a much-reduced schedule and capacity alongside high fixed costs such as plane leases, head office and staff costs, which are spread over a far wider pool of flights.
Meanwhile, variable costs like fuel, aircraft handling and landing fees are increasing at a slower rate than revenue.
“If the group can maintain a similar dynamic in the fourth quarter, when it’s set to increase the number of flights on offer once more, it might be within touching distance of breaking even – although management have budgeted for further losses,” said Nicholas Hyett, analyst at Hargreaves Lansdown.
“Despite the progress there is a long way to go before IAG returns to where it was pre-pandemic. Until it gets back into cash flow positive territory it will continue to lump around a growing parcel of debt, which must ultimately be repaid from a business that may well end up being smaller than it was in 2019.”
“The share’s current price to book ratio is a perfect illustration of just how much damage has been done over the last 18 months, at over seven versus a long term average of less than two the pandemic has wiped out equity value and at one point left the group clinging on – it may be an accounting technicality, but it’s a telling one,” he added.
Shares rose 4% to 176.46p on Friday afternoon, clawing back earlier losses.