A discussion on IAG, AFKLM and the Lufthansa Group – analysing their individual situations and strength as the coronavirus batters the industry.
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In a recent piece of coursework submitted at Bucks New University, I analysed International Airlines Group (IAG) and their financial position going into the Coronavirus crisis. This has inspired me to take a deeper look into European aviation – and specifically the strength of the three major airline groups as we head through this pandemic and into unknown and unchartered territory for the industry. IAG, Air France-KLM and Lufthansa Group provide the backbone for the European air travel sector, but each are placed differently to face the challenges ahead.
Starting with IAG – who are by far the most profitable of the three groups. In 2019 they had an operating margin of 10.24% and employee costs of 5.6 billion euro. The group have received support from both the UK and Spanish governments totalling 1.27 billion euro. Quite low compared to other groups but justified by the large cash reserves the group had going into the start of the year. As has been widely reported British Airways are planning to both lay-off 12,000 staff and cease operations at London Gatwick to scale back operations and reduce losses in the coming years of stunted demand.
Air France-KLM meanwhile are in a far worse situation in terms of profitability. Their 2019 operating margin was 3.7% – and in the first quarter of 2020 went into this crisis with a high level of hedged fuel and a 1.8 billion euro loss. AFKLM had significantly higher employee costs last year compared to IAG. With over 8 billion euro in staffing payments, the group are in a great need to lower their workforce and bring about a more efficient operation. Lengthy talks with unions are expected to commence in the next few weeks. Even before the crisis Air France were struggling and so a large 7 billion euro package has been given to the group by the French government, alongside several billion from the Dutch. This big loan will come with major strings attached however – with Air France required to commit to a major upscale in sustainability efforts.
Finally, the Lufthansa Group. Of the three groups they can arguably be said to have been in the worst financial position going into 2020. The group had a 2019 operating margin of just 3.35% – three times less than IAG. They also suffered a net loss of more than 2 billion euro in the first quarter and continue to bleed millions at a rapid rate. The group had comparatively lower staff costs last year of 3 billion euro, though it is still expected that over 20,000 staff will be surplus to requirements as operations decline. The group are set to receive a major bailout loan from the German government of 9 billion euro – which is looking likely to require the group to give up valuable slots at Munich and Frankfurt.
Overall, it can clearly be seen that these three major groups employ a massive workforce and so any fall in operations for them is sad news for the industry. IAG can likely be considered to be the airline in the best situation from a profitability and liquidity aspect. Although AFKLM and Lufthansa Group are to receive larger bailout loans from their respective governments, these come with heavy strings attached and at the end of the day will need to be paid back eventually. This current crisis is a dire situation for any airline group, regardless of their financial strength. Although the three airlines have financial backing and support only time will tell how drastic an effect Covid-19 will have on them and the industry as a whole. One can only hope there is success and rapid growth for air travel at the end of the tunnel.
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Images used:
“Air France B777-228ER F-GSPN and Lufthansa A380-841 D-AIMJ” by Kohei Kanno. View here. Licensed under CC BY-2.0. View license. Image cropped.
