The International Consolidated Airlines Group (LSE: IAG) share price has reversed heavily over the past year. And it plunged again on Friday following a frosty reception to fresh financials.
IAG is now trading just above penny stock territory around 130p. Is the FTSE 100 flyer now too cheap for me to miss?
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More massive losses
IAG’s share price plunged yesterday as it announced a bigger-than-expected operating loss for the first quarter. Losses at the British Airways owner have narrowed as its jets have returned to the skies en masse. Operating losses in the three months to March dropped to €731m from €1.1bn a year earlier. But this was about €200m more than the market had been expecting.
It also got a chilly reception on Friday as it downgraded its capacity estimates. The business said it expects capacity to reach 80% of 2019 levels in the second quarter and 85% and 90% in quarters three and four respectively.
IAG says it now expects full-year capacity of 80% of pre-pandemic levels. It had predicted in February that 2022 capacity would stand at 85% of 2019 levels.
The group’s plans have been hit by staff shortages after it sacked thousands of workers at the height of the pandemic.
Ready for take off?
The share price might have plummeted on Friday, but its latest trading statement wasn’t a complete horror show. In fact, analyst Susannah Streeter of Hargreaves Lansdown commented that “IAG’s recovery is primed and ready for take-off” following the update.
Capacity is steadily improving (up to 65% in quarter one from 58% in the prior three months). And IAG expects capacity on its lucrative North Atlantic routes to move close to full capacity in quarter three.
Data from across the travel sector suggests there is still strong pent-up demand for holidays following the pandemic. Revenues at IAG (which jumped almost 480% in quarter one to €2.7bn) could continue rising strongly.
4 reasons I wouldn’t buy IAG
That said, there are four major reasons why I won’t be buying IAG shares following Friday’s share price slump:
- Soaring inflation could batter the level of bookings later in 2022 as consumer spending comes under pressure. UK consumer confidence has just slumped to its lowest since the 2008 financial crisis.
- The war in Ukraine could keep sending oil prices (and consequently fuel costs at IAG) higher. Brent remains just off recent 14-year highs around $130 per barrel.
- Net debt remained at a sky-high €11.6bn as of March. This could significantly dent IAG’s long-term growth plans and cause big problems if bookings slow again.
- IAG’s share price could sink again if staffing problems means it’s forced to shave its capacity estimates again.
City analysts think IAG will break back into profit again in 2023. But it’s my opinion that the risks facing the business in the near term and beyond make it an unattractive stock to buy. I’d rather invest in other UK shares as inflation rockets.