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What the Ouster of the British Airways CEO Tells Us About the State of European Airlines

Madhu Unnikrishnan
October 12th, 2020 at 2:10 PM EDT

European airlines’ dark autumn cost another executive his job. British Airways CEO Alex Cruz will step down immediately, to be replaced by Aer Lingus CEO Sean Doyle, International Airlines Group (IAG), parent company to both airlines, said in a statement on Monday.

Cruz, who began his airline career at American Airlines, has led British Airways since 2016. He previously was chief executive of Spanish carrier Vueling, also an IAG airline.

British Airways, like many European carriers, is entering an uncertain period for the balance of the year. Hopes abounded at the start of the summer, as many European countries seemed to get the pandemic under control, that air travel demand would return to something approaching last year’s levels. And for a few weeks it seemed like it might as Europeans took their summer holidays. According to Eurocontrol, air travel demand on Aug. 7 was 50% of last year’s, prompting the agency to plan for a return to as much as 85% of last year’s demand by yearend.

That recovery didn’t pan out. Now, Eurocontrol believes demand by yearend will hold at about half of last year’s. Another alarming statistic: Lufthansa expects to have 150 fewer aircraft by 2023 than it had planned, which further illustrates the depth of the crisis.

Second-wave infections have broken out in many European countries, including the holiday hotspot of Spain, and several countries have re-imposed two-week quarantines for inbound travelers. We dive into this issue in this week’s Airline Weekly Feature Story, “European Recovery Derailed.”

Quarantines are crimping demand. IATA and Airports Council International have called on European governments to relax quarantines and instead focus on a comprehensive testing plan. This, the groups believe, will spur demand and allay passengers’ fears about traveling. No one wants to take a two-week vacation, they argue, if a two-week quarantines is required upon arrival. And most business trips simply aren’t feasible with two-week quarantines. But so far, European governments have not changed their policies.

British Airways itself has been beset by troubles. It engaged in a high-profile dispute over the summer with its pilots union that caught the attention of Parliament. The pilots eventually signed a deal and averted some furloughs. But the airline is reducing its headcount by about 13,000 employees. On the plus side, it has taken a government-backed loan and expects to raise cash from shareholders, so it has liquidity.

Like its peers Lufthansa, Air France, and KLM, British Airways staked its fortunes on premium longhaul passengers. To be sure, it has a robust shorthaul European network, but British Airways’ bread-and-butter is intercontinental flights, and it has a particularly lucrative operation from the U.K. to North America. The leisure market has virtually evaporated, with quarantines in Britain and elsewhere. Furthermore, intercontinental business travel has all but disappeared. Although carriers like Wizz Air have been well positioned to take advantage of the leisure market that exists in Europe, the big European carriers have struggled to retool their networks and to replace lost premium business-travel revenue.

Now, British Airways thinks it won’t see travel return to 2019 levels until 2023. This is slightly more optimistic than IATA, which thinks global demand won’t return until 2024. “We’re navigating the worst crisis faced in our industry and I’m confident these internal promotions will ensure IAG is well placed to emerge in a strong position,” IAG CEO Luis Gallego said of Cruz’s ouster and Doyle’s elevation. “As our new team comes together, we remain focused on making the right operational and strategic decisions for the long-term benefit of all IAG’s stakeholders.”

Madhu Unnikrishnan
October 12th, 2020 at 2:10 PM EDT

Photo credit:  British Airways

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