A few days ago, I suggested all airline stocks are best avoided by Foolish investors until the coronavirus dust settles. A quick look at this morning’s second-quarter trading statement from British Airways owner International Consolidated Airlines (LSE: IAG) and I’m even more sure.
Huge loss at IAG
Today, IAG reported an operating loss of almost €1.37bn, before exceptional items, for Q2. Contrast that with the €960m operating profit in 2019 and you get an inkling of the “devastating impact” the pandemic has had on the company.
As you’d expect, passenger numbers tumbled as travel restrictions came into force. Capacity over the three months was 95.3% lower compared to the same period in 2019 as nearly all of the FTSE 100 member’s aircraft were grounded. The only exception to this were flights carrying essential supplies and those put on for repatriating travellers.
For the half-year as a whole, IAG reported an after tax loss (before exceptional items) of €1.97bn and a statutory loss after tax and exceptional items of €3.8bn. Pretty grim stuff.
Cost-cutting
Again, numbers like these have necessitated serious cost-cutting at IAG. In addition to accessing government support, the firm has slashed capital spending and deferred the delivery of 68 new planes. The possibility of significant job losses is, of course, already common knowledge.
This left it with just over €6bn in cash at the end of June. Take into account undrawn lending facilities and this rises to €8.1bn.
To further protect itself financially, however, IAG announced today it would be looking to tap investors for another €2.75bn. This capital raise will likely take place in September and supported by its largest shareholder, Qatar Airways.
Uncertainty = no profits guidance
When will things improve? If only we (and IAG) knew. In line with what the company said back in February, it reiterated today that the uncertainty surrounding the coronavirus means no guidance on profits for 2020 can be issued.
That said, IAG is planning for capacity to increase over the remainder of the year. In Q3, this is predicted to be down 74% on that achieved in 2019. In Q4, capacity is expected to be down 46%.
Commenting on IAG’s outlook, an understandably bearish CEO Willie Walsh said the company expects it will take “until at least 2023 for passenger demand to recover to 2019 levels.” Not that Walsh will be around to see it. He’s due to retire on 8 September and be succeeded by Iberia boss Luis Gallego.
Steer clear of IAG
Shares in IAG were down 7% in early trading this morning, suggesting the market was taken aback at just how concerning today’s announcements were. If you exclude the last few months, shares haven’t flown this low since 2012.
I can’t see the situation changing anytime soon. There are simply too many potential variables at play and too many things that could get worse. As such, IAG remains pretty much impossible to value and, in my view, uninvestable. It may well be able to capitalise on its clout as smaller competitors go to the wall, but this will count for little if it can’t get a sufficient number of planes in the air.
With no dividends to placate holders, there’s simply no point risking your capital when so many better opportunities exist elsewhere in the market.
I’d leave IAG to the traders for now.
