The roller coaster ride of the International Consolidated Airlines Group (LSE:IAG) share price continues. Even though the share price is down 22% over the past year, it has offered short-term returns when sentiment flips to being positive. For example, IAG shares are up almost 20% in the past three weeks. At 145p now, is 180p the next stop on the horizon?
The good and the bad pulling the IAG share price
Over the past few months, there have been several points that have caused the volatility in IAG shares. Some of these have been positive, others not so much.
In terms of positive developments, the easing of Covid-19 restrictions relating to travel has been a boon for airline operators. A lack of paperwork on landing, and removing mandatory mask-wearing on flights should encourage more people to fly.
Further good news came in late February regarding increased demand by customers. In the annual report, it noted that the reopening of the North Atlantic route “led to transatlantic bookings reaching nearly 100% of 2019 levels.” Capacity is also moving in the right direction. In Q1 2021, it was at 19.6% of 2019 levels, by Q4 this figure had risen to 58.3%.
On the other hand, some negative events have caused IAG shares to fall. For example, the conflict in Ukraine has hampered operations in a few different ways. Flights in Russia airspace have had to be re-routed.
Rising oil prices will also be putting pressure on fuel costs for IAG. Brent Crude broke above $100 per bbl almost a month ago, and is still trading comfortably above that as I write. Considering that it was trading around $60 a year ago, it’s quite the jump. This will put pressure on the cost base for IAG, potentially hurting profitability.
Looking for a move to 180p
In my opinion, 180p is a key level to reach and break through if IAG shares are to stage a comeback. It didn’t manage to break and hold above this price back in February or last October. This makes it a key psychological level for the market.
From my calculations, the current market capitalisation of the business is only 42% of the enterprise value. The enterprise value is an alternative method of valuing a company. It takes into account points like cash holdings and also debt. If the enterprise value stays the same, the share price would have to reach 345p to make the market cap the same value.
I’m not going to sit here and say IAG shares are going to 345p in coming months. But if this is the long-term trajectory over several years, then 180p is the first hurdle to take out in coming months to move in that direction.
180p would also put IAG shares back to where it was six months ago, which I feel is a fair price based on the net impact of the positive and negative developments mentioned above. With that in mind, I do think 180p is a price that it can reach, so am considering buying the shares.
