Why is the IAG share price on a downward trajectory?

The IAG share price has been on a downward trajectory over the last six months. Zaven Boyrazian explores why, and if that might soon change.

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The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

It’s been a rough 18 months for the International Consolidated Airlines (LSE:IAG) share price. Even after making a slight recovery, the stock has returned to a downward trajectory. In fact, over the last six months, it’s fallen by over 30%. While its 12-month performance is still positive at around 15%, this may soon change if the IAG share price doesn’t change direction. Let’s take a closer look at what’s going on.

The decline of the IAG share price

Like many travel businesses, the pandemic has wreaked havoc on IAG’s operations. The vaccine rollout did improve its situation as travel restrictions started getting lifted. That’s why shares of easyJet and Ryanair have been able to perform relatively well in 2021.

Unfortunately, IAG hasn’t had the same privilege. The airline focuses on long-haul international flights rather than short trips across Europe. More specifically, it dominates the UK-US transatlantic flight path. In a pre-pandemic world, this proved to be a lucrative venture. But today, the route remains beset by travel restrictions. And just last month, the European Union voted to block all non-essential travel from the US to reduce the spread of the Delta variant.

Needless to say, this is not good news. And it will most likely add pressure to the already limping passenger numbers. According to the latest half-year report, passenger capacity for the remainder of 2021 is estimated to be around 45% of 2019 levels. However, this was before the newest set of UK-US travel restrictions were issued. And by comparison, easyJet is aiming closer to 60%.

Knowing all that, the fall of the IAG share price doesn’t seem too surprising.

It’s not all bad news

Despite the underwhelming performance, there are some encouraging signs of recovery. In the second quarter of 2021, passenger revenue, while still firmly below pre-pandemic levels, was about 325% higher than a year ago. Meanwhile, income generated from hauling cargo is on the rise. Over the last six months, it’s up 25% compared to 2020 and 38% versus 2019.

This revenue stream is much smaller than transporting passengers. However, it has helped mitigate some of the negative impacts. Combining this with various cost-cutting efforts, the operating loss for the first two quarters of this year came in at around €2.05bn. That’s down from €3.81bn in 2020. Obviously, that’s good news for IAG and its share price.

Beyond existing operations, management has begun exploring the idea of launching its own low-cost short-haul airline to compete with easyJet. This seems like a prudent move, especially if international travel restrictions are going to be in place for a prolonged period of time.

The IAG share price has its risks

The bottom line

All things considered, I’m avoiding this business for now. The management team’s efforts appear to be slowly paying off. But the recovery of the IAG share price seems to be determined by external factors beyond their control. In my experience, that’s not a good trait for any business to have.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be considered so you should consider taking independent financial advice.

Zaven Boyrazian 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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