MADRID – The British-Spanish multinational airline company under Spanish law IAG, like other airlines, lost money last year. In the third and best quarter of last year, the company still lost €574 million.
However, this third quarter should have made up for everything that was lost in the other three quarters. The Anglo-Spanish group that manages British Airways and Iberia, like most other companies in the sector, is confident that they will deliver positive results in the coming year. However, the company is aware that the pre-Covid activity level cannot be reached until 2024. Moreover, the mission seems more difficult now. This is because recovery is found to be faster in less profitable domestic traffic than in foreign traffic.
Cheaper tickets to overcome the difficult months
To overcome the difficult months, IAG, like most airlines, has offered cheap tickets. For example, they hoped to be able to persuade people with a fear of flying due to the pandemic to book a flight. However, they cannot continue to do so in pain of bankruptcy.
The newspaper El Economista writes that now is the time to raise prices to make a profit again or to reduce losses in a financially very difficult context. That context consists first of all of the fuel prices that have doubled and represent a third of the costs. Furthermore, business trips have decreased, meaning leisure trips have to become more expensive to maintain the average income per ticket. Finally, airlines are also experiencing the highest inflation of the past three decades. All this drives up prices, including those of other necessities to be able to operate flights.
Full effects of the Omicron-variant still unknown
Moreover, the full effects of the omicron variant are still unknown. Many flights are cancelled due to the lack of passengers who are not allowed to fly due to contamination. Infected personnel also cause flight cancellations. Finally, the demand for holiday flights will increase while the supply in Europe will decrease by about 20% due to the disappearance of tour operators Thomas Cook, Flybe, Alitalia, and others.
EU demands measures
In addition, the EU is demanding serious measures to meet its commitments of zero CO2 emissions by 2050. Following on from this, the new German government has already announced an increase in air traffic taxes. Airlines do not pay VAT on the fuel used on their international flights. These measures are intended to be imposed on the entire European Union.
In addition, some industries are asking for an increase in the price of CO2 emissions allowances for air transport, which would be lower than those in other sectors. The need to start using less polluting but more expensive fuel to meet the targets also increases the cost of the flight.
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Some companies that sell cheap tickets already have a very tight cost structure and may need to move to a moderate price increase. Other airlines are flying nationally at a loss to maintain profitable transatlantic routes or those to Asia, but all will raise their prices this year.