Can the IAG share price recover from its slump?

The IAG share price slumped further despite reporting decent Q1 numbers. With inflation running rampant, can the stock recover with the travel rebound?

| More on:

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.

Key Points

  • The IAG share price continues to decline despite reporting decent Q1 results.
  • The numbers look promising as the company expects to achieve profitability in Q2.
  • I am wary of the macroeconomic factors that could result in the company overpromising.

Despite reporting a decent set of results on Friday, IAG (LON: IAG) had its stock further slashed by 5%. As a result, the IAG share price is now down 15% year to date. With that in mind, guidance provided by management could pull the stock out of its slump.

Higher altitude expected

So, why is the IAG share price down then? The group reported an operating loss of €731m. This was much better than the €1.1bn loss it incurred a year ago after all. While this is a 32% improvement, the figure still fell below analysts’ expectations of €548m. Additionally, total passengers also fell below expectations of 15.3m. The group reported a figure of 14.4m instead. Finally, worries of staff absenteeism and IAG having to fork out additional capital to hire workers soured investor sentiment. Therefore, the share price dipped from expectations not being met.

Inflation Is Coming

Inflation is out of control, and people are running scared. But right now there’s one thing we believe Investors should avoid doing at all costs… and that’s doing nothing. That’s why we’ve put together a special report that uncovers 3 of our top UK and US share ideas to try and best hedge against inflation… and better still, we’re giving it away completely FREE today!

Click here to claim your copy now!


Pushing the negatives aside, there were lots of positives to takeaway. IAG is in a transitory period as it gears up towards profitability, and the numbers don’t lie. For one, total revenue before exceptional items was up by a whopping 485% year on year (Y/Y). This beat analysts’ expectations of €3.37bn as the final figure was €3.43bn.

Load factor, a measure of how full a plane is, also saw a monumental increase. The metric jumped to 72%, which was also above consensus of 69%. Nonetheless, this was still 41% down from pre-pandemic levels, as travel to Asia continues to be hampered from Covid restrictions.

Even though the conglomerate’s balance sheet still remains undesirable, it’s worth noting that IAG reduced its debt levels by 0.6%. On top of that, it also improved its liquidity position. Cash and equivalents came in at €8.2bn, a €241m improvement from last quarter.

Sky-high inflation

The main surprise for me was the guidance provided in the trading statement. I was amazed to see that IAG expects its operating results to be profitable from Q2 onwards. In light of the recent guidance provided by many of its other competitors, this could be possible. As such, the airline group may very well be in for a windfall of profits in the short term.

Nevertheless, I am still cautious about the optimistic IAG guidance. This is because, despite industry tailwinds of travel recovering, consumers continue to face a cost of living crisis, with the worst yet to come. The Bank of England recently raised its bank rate to 1% and predicts a contraction in the British economy towards the tail end of the year. Given that the majority of the firm’s customers fly on British Airways, a contraction could lead to a substantial hit to IAG’s customer base.

AirlineBritish AirwaysIberiaAer LingusVuelingLevel
Passenger numbers (‘000s)5,2943,8461,1494,03454
Source: IAG Q1 2022 Traffic Stats

To conclude, although IAG remains upbeat about its prospects in achieving profitability for the year, I think the path ahead is a cloudy one. I believe inflation will eat into discretionary spending eventually. It’s only a matter of time before the travel industry has to hit the brakes once again. With that being said, I don’t think the IAG share price will recover to its highs of £4.50.

FREE REPORT: Why this £5 stock could be set to surge

Are you on the lookout for UK growth stocks?

If so, get this FREE no-strings report now.

While it’s available: you'll discover what we think is a top growth stock for the decade ahead.

And the performance of this company really is stunning.

In 2019, it returned £150million to shareholders through buybacks and dividends.

We believe its financial position is about as solid as anything we’ve seen.

  • Since 2016, annual revenues increased 31%
  • In March 2020, one of its senior directors LOADED UP on 25,000 shares – a position worth £90,259
  • Operating cash flow is up 47%. (Even its operating margins are rising every year!)

Quite simply, we believe it’s a fantastic Foolish growth pick.

What’s more, it deserves your attention today.

So please don’t wait another moment.

Get the full details on this £5 stock now – while your report is free.

John Choong has no position in any of the shares mentioned at the time of writing. 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.

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.

More on Investing Articles

Young female analyst working at her desk in the office
Investing Articles

Should I buy Amazon shares?

Amazon has a strong web services business and our author thinks its online retail operations are underappreciated. So should he…

Read more »

Young mixed-race woman looking out of the window with a look of consternation on her face
Investing Articles

How I’d invest a Stocks & Shares ISA today for dividend income in the future

Our writer has been investing his Stocks and Shares ISA with the aim of building income streams for the long…

Read more »

Passive and Active: text from letters of the wooden alphabet on a green chalk board
Investing Articles

2 undervalued passive income stocks I’d buy today with £1,000

Falling stock prices are pushing up dividend yields. As a result, our author is looking for undervalued passive income stocks…

Read more »

Close-up of British bank notes
Investing Articles

2 cheap dividend shares I’d buy in a heartbeat

Our writer picks a pair of FTSE 100 dividend shares he would consider for his portfolio, that he thinks look…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

With £500, I’d use the Warren Buffett method to find cheap shares

The legendary investor Warren Buffett has become a billionaire by following some key investment principles. Our writer explains why he…

Read more »

Man in a clothing store in a medical mask because of a coronovirus.
Investing Articles

Down 81%, are boohoo shares set for an explosive comeback?

boohoo shares have been falling rapidly. But could interest from a billion-dollar hedge fund cause a turnaround in 2022?

Read more »

Smartly dressed middle-aged black gentleman working at his desk
Investing Articles

The Tullow Oil (TLW) share price jumps after losses! Is now the time to buy?

The Tullow Oil (TLW) share price ticked upwards on Thursday morning after falling nearly 30% over the last month. So,…

Read more »

Female analyst sat at desk looking at pie charts on paper
Investing Articles

Is the Lloyds share price about to dip below 40p?

The Lloyds share price has been trading below 50p for the better part of the year. But could the stock…

Read more »