The IAG share price has crashed 62% in 2020. What would I do?

The IAG share price has dived this year, due to collapsing flight numbers. What should shareholders do: sell, hold on or buy?

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It’s been a horrible year for the FTSE 100, down 22.5% in 2020. But some shares have fared much worse, such as International Consolidated Airlines Group (LSE: IAG). Indeed, the IAG share price is among the worst performers in the UK market.

The IAG share price is a roller-coaster

IAG is a world-leading airline operator and the owner of British Airways, Spanish airline Iberia and Irish carrier Aer Lingus. At the start of 2020, the IAG share price was riding high, peaking at 270.31p on 17 January.

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Then news of a dangerous virus spreading sent airline shares sliding. During March’s market meltdown, IAG shares plunged to 78.55p on 19 March, down 70.9% from their 2020 high.

As the UK locked down to reduce the spread of Covid-19, IAG shares surged though. They climbed as high as 133.58p on 8 June (up 70% from their March low), before bottoming out at 66.01p on 3 August.

IAG raises €2.74bn from shareholders

On 31 July, IAG announced that it was to raise almost €2.75bn (£2.48bn) from shareholders. This rights issue involved it selling almost 2.98bn new shares at €0.92 per share. This sum would reduce its net debt and strengthen its balance sheet.

The reaction of the IAG share price was swift and strong. From 31 July to 14 September, the shares more than doubled, rising 104% to hit 134.35p.

The IAG share price dives again

But since 14 September the share price has plunged, falling to 94.64p at Friday’s close – down 29.6% in 11 days. This values the UK’s flag carrier at £1.88bn, a small fraction of its former worth.

Thanks to its 2020 plunge, just look at how poorly the IAG share price has performed over these time periods: it’s down 26.4% in a week, then over a month it’s -29%, three months is -36.7%, and six months -38%. Over a year it’s down 69.9%, while it’s -79.1% over two years, three years is -75.6%, and five years -75.2%.

In short, it’s been a pretty brutal 2020 for IAG shareholders.

What would I do with IAG shares?

On 31 March, I prodded deep-value investors to take a look at the IAG share price. However, as the Coronavirus crisis unfolds, I’ve since changed my mind . Given the likelihood of a deep and prolonged downturn, I can’t see a clear path to profitable air travel. Note that IAG’s passenger numbers collapsed by 95% in its second quarter.

With new social restrictions in force for the next six months, I don’t see airlines staging any recovery until 2023 at best. What’s more, the sustained profits of the 2010s might never return.

IAG is cutting costs, laying off tens of thousands of workers and reducing all expenses to offset severely reduced demand. Even so, it might be loss-making for several years. Problematically, IAG had net debt of €10.5bn at mid-2020 (before the rights issue), as well as a worryingly large pension deficit.

Given its heavy indebtedness in the face of reduced air travel, the IAG share price could be volatile and come under increasing pressure. Today, I view the shares as a classic ‘value trap’ and would steer well clear until more attractive entry points emerge!

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Cliffdarcy has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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