The parent company of British Airways has hailed a pick-up in travel between the UK and United States for helping to narrow losses and predicted a return to profitability this year despite a leap in costs.

International Airlines Group (IAG), which also has the Aer Lingus and Iberia brands in its stable of carriers, reported a pre-tax loss of €916m for the first three months of the year.

That was down from €1.2bn in the same period in 2021.

The group said that while Europe had lagged demand as travel slowly reopened following the easing of the Omicron COVID variant, it had seen a big pick-up in lucrative business and tourism traffic across the Atlantic.

However, it confirmed a 5% cut in short haul capacity at Heathrow as BA gets to grips with staff shortages and IT gremlins that have dogged its schedules in recent months and harmed its recovery from the pandemic.

BA shed 13,000 staff alone as lockdowns forced flights to be grounded with no crystal ball available on when the public health emergency would end.

The crisis has cost IAG billions.

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It said the flight cancellations – on routes which have high frequency services – would last through the peak summer season as it wanted to provide stability for passengers and avoid repeats of flight disruption to date.

IAG said it would be running at 80% of 2019 capacity in this quarter, rising to 85% from July to September and to 90% from October to December.

Shares fell back by 8% on the reduction in planned capacity.

Its quarterly loss was also higher than had been anticipated.

Chief Executive Luis Gallego said the cost of dealing with the company’s reopening issues was the main reason.

“Demand is recovering strongly in line with our previous expectations,” he said, adding that the company was focused on improving operations and the customer experience.

Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said IAG’s update had help spark a wider FTSE 100 sell-off of 1% as investors fret over economic recovery following warnings of a recession ahead from the Bank of England.

She wrote: “The slide was sparked by British Airways parent company IAG disappointing investors with news that although it’s flying back into profitability, it’s slowing expansion plans.

“That’s caused a headwind for other airlines today with easyJet falling by around 2% in early trade and Wizz Air also buffeted by fresh worries about its growth trajectory.”

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