Can the IAG share price double in 2022?

The IAG share price has limped on since the pandemic started, but can it explode in 2022? Zaven Boyrazian explores the firm’s potential.

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An airplane on a runway

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Investors in International Consolidated Airlines (LSE:IAG) have been understandably horrified by the share price performance over the last two years. With the pandemic decimating the travel sector, the stock collapsed by 70% in the first three months of 2020. Since then, it has limped on, even in 2021 when optimism started to hit the market.

But now that Covid-19 is slowly losing its disruptive grip on the world, can the IAG share price make a stellar comeback, potentially doubling in the process? Let’s explore what could happen in 2022.

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The volatile IAG share price

To understand whether this company can return to its former glory, I feel it’s important to know why it fell from grace in the first place. In this case, the answer is pretty obvious. A global pandemic led to international travel restrictions, sending IAG’s business, and in turn, its share price down the toilet.

Unfortunately, the pandemic is still ongoing. And the fears surrounding the Omicron variant aren’t exactly helping matters. Some airlines have managed to make good progress in returning to business as usual. And IAG is no exception. However, with the company’s primary focus being transatlantic flights, recovery progress has been notably slower than the competition.

The reduced passenger capacity has led to significant cuts in operating cash flows. As such, the firm is not generating sufficient income to cover its interest payments on debt, let alone its standard running costs. Needless to say, that’s not a good sign. And it’s a problem that will likely continue to plague the business until the pandemic is over. There’s even a chance IAG could go under, sending its share price to zero.

Potential for a comeback?

As horrifying as an insolvency situation would be, there are several reasons to be optimistic about the IAG share price.

Firstly, while the pandemic may not end in 2022, the world seems to be adapting. Looking at the company’s September third-quarter earnings report, passenger capacity jumped from 21.9% to 43.4% of pre-pandemic levels. Management’s target for 2021 was 60%, and it’s something I’ll be looking for when the full-year results come out. If this goal is met and passenger volumes continue to climb in 2022, IAG’s revenue could start recovering quickly.

This is, of course, meaningless if the firm were to fail. But thanks to some oversubscribed bond issues last year, along with an additional £1bn credit facility, the company has significantly strengthened its liquidity with €10.6bn (£8.8bn) at its disposal.

Obviously, borrowing money doesn’t fix the underlying problem. However, it does give management valuable time to get operations back on track. 

The bottom line

The latest forecasts for the travel sector indicate that a full pandemic recovery for most airlines won’t happen until 2024. However, both business and consumer travel spending gaining momentum by double-digit rates. As such, I think the company should be able to restore a significant portion of its revenue stream. And it seems other analysts agree as 2022 revenue forecasts indicate total sales will land at €19bn versus the €8.5bn expected for 2021.

This 120% rise in revenue could be enough to regain investor confidence, sending the IAG share price flying in the process at similar rates. Having said that, I’m personally going to wait until the full-year results come out to get a clearer picture of the situation before making a move for my portfolio.

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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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