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British Airways Owner Says Brussels Attacks and Brexit Fears Hit Hard

British Airways Ahead Of StrikeBritish Airways Ahead Of Strike
British Airways employees stand outside Terminal 5 at Heathrow airport in London.Photograph by Chris Ratcliff—Bloomberg via Getty Images

British Airways-owner IAG said it would trim its growth plans this year to adjust for weaker demand in the second quarter, as people flew less after the Brussels attacks and as oil weakness and Brexit worries dented business travel.

IAG’s Chief Executive Willie Walsh said on Friday that the group, whose portfolio also includes Iberia, Vueling and Aer Lingus, would cut its 2016 capacity growth to 4.9% from a previously planned 5.2%.

The Brussels attacks, which included a bombing in the departure hall of Zaventem airport and claimed 32 lives on March 22, had curbed travel appetite over the last six weeks, IAG said.

“The trends going into the third quarter, however, appear to be back to normal,” Walsh told reporters on a call, saying he expected the third quarter to be “strong.”

That period is when IAG (ICAGY) tends to make its biggest profit as its core European customer base goes on holiday.

Walsh said the Brussels attacks were having a “more pronounced” and “more extended” impact on travel demand than past shocks given how soon they had come after the Paris attacks in November.

 

Shares in IAG traded down 4.5% to 525 pence at 0805 GMT, continuing a dismal run since the beginning of the year.

The stock has lost 13% since January, underperforming Britain’s blue-chip index, which is flat. Some analysts have blamed risks associated with Britain’s vote on EU membership on June 23.

“The shares remain under the pall of the UK’s EU referendum … and for many investors we find this binary outlook to be a deterrent to new investment,” RBC analyst Damian Brewer said.

In the second quarter, IAG was also being affected by weaker demand from high-margin business travelers, in particular flying related to the slowdown-hit oil industry and Brazil, and as British corporates take a pause due to Brexit uncertainty.

American Airlines Group (AAL) warned earlier in April that a key revenue measure would fall in the second quarter.

Lufthansa, IAG’s European rival, publishes first-quarter results on May 3.

IAG stuck to its forecast for 2016 profit. It said reaching that target would be helped by a plan to cut costs, excluding fuel, by about 1% during the year.

For the three months ended March 31, IAG posted underlying operating profit of 155 million euros, beating a consensus forecast of 145 million euros, due to lower fuel prices and cost cuts.