Summer has historically been one of the best times for airlines, as tourism soars. However, over the past couple of years, airlines have not been able to capitalise on the summer boom, as travel has been restricted. One company that has been affected is International Airlines Group (LSE: IAG), which has seen mounting losses in the past two years. But now that restrictions have nearly been entirely lifted, can the IAG share price soar?
Recent results
The devastation the pandemic has caused for IAG has been reflected in its financial results. For example, in 2020, it saw an operating loss of €7.8bn, and in 2021, it reported operating losses of over €2.7bn. Neither of these results were pretty, and this is the reason why the IAG share price has fallen nearly 80% since the start of 2020. Further, in the past 12 months, it has fallen 30%.
There were other negatives to take away from the 2021 full year results too. For instance, IAG has had to continually borrow to stay afloat, and this means that net debt now totals over €11bn. At the same time, shareholders’ equity only totals €840m, showing that the company’s financial health is poor.
Despite this, there are some recent signs of improvement. This includes the company expecting capacity to reach 85% of 2019 levels this year. As this is near normality, I hope it will be followed by some signs of profitability.
The airline industry
There are also other signs that travel is recovering, taken from other airlines. Indeed, in the recent United Airlines trading update, it noted that it expects to be profitable for FY22 and in the upcoming second quarter, it expects its highest revenues to date. This is partly due to the acceleration in business and long-haul international bookings. As IAG is heavily involved in such business and long-haul international flights, this bodes well for the next trading update.
But there are still risks facing the company. These include the rising price of oil and the poor coronavirus situation in China. Firstly, the price of oil is likely to increase costs and may see profit margins decrease. Fortunately, IAG has hedged a large percentage of oil, and this should mitigate some of these impacts. Secondly, the coronavirus situation in China, where Shanghai has already been locked down, will restrict travel to these areas. This is another worry.
Can the IAG share price rise?
Yet as summer approaches, I believe IAG is in a better position than it was in previous years. Demand is starting to increase, and people seem keen to get away. Therefore, while the coronavirus situation in China is a particular concern, this doesn’t detract from my optimism. For these reasons, I’m tempted to add some IAG shares to my portfolio as a recovery stock.
