Down 35%, is the IAG share price ready to take off?

After a tough few years, the IAG share price is down further. Finlay Blair considers if this latest drop offers new investment opportunities.

| More on:
An IAG British Airways plane takes off

Image source: IAG

The last few years have not been kind to airlines. After surviving two years of Covid-related travel disruptions, airlines are now experiencing sky-high fuel prices and inflation-related consumer demand uncertainty. The IAG (LSE:IAG) share price reflects these woes with it plummeting 35% in the last year and 69% in the last five.

Whenever a stock falls this drastically, it is always good to ask if it is completely justified or if there are opportunities at hand.

5 Stocks For Trying To Build Wealth After 50

One notable billionaire made 99% of his current wealth after his 50th birthday. And here at The Motley Fool, we believe it is NEVER too late to start trying to build your fortune in the stock market. Our expert Motley Fool analyst team have shortlisted 5 companies that they believe could be a great fit for investors aged 50+ trying to build long-term, diversified portfolios.

Click here to claim your free copy now!

Expected turbulence

The British Airways owner fell 8% last Friday after reporting a pre-tax £916m loss in Q1. And it has continued to struggle this week. A brief flare-up of the Omicron variant reduced IAG’s passenger numbers and damaged revenue in this period. Despite a loss having been expected for the group, the results still underperformed analysts’ expectations and the IAG share price fell.

Alongside this previous poor performance, investors have a few concerns regarding IAG’s future outlook. It has hedged less than its peers against the price of fuel, which leaves it less protected against rising prices. This could squeeze profit margins for the company, while current staffing shortages look to continue to disrupt future operations.

Alongside this, inflation has raised the cost of living for consumers. People have to prioritise paying energy and food bills so luxuries such as holiday travel could be lower on their must-do lists and IAG’s passenger numbers may fall. Inflation will also increase the operating costs for the company and eat further into margins.

Glimmers of hope?

Despite the cloudy future for IAG, there is some hope that passenger numbers may rebound in the summer of 2022. There seem to be signs of suppressed demand for holidays as travellers hope to enjoy a summer free of major travel restrictions.

IAG has already seen a rise in passenger capacity. In Q1 it was 65% of 2019 capacity, up from 58% in Q4, 2021. There are expectations for this to rise to 80% in Q2, 85% in Q3 and 90% in Q4. However, the IAG share price doesn’t reflect this optimism. And considering the risk of inflation lowering consumer demand, I believe these projections could be a little too optimistic.

What am I doing?

While I recognise the fall in price could be appealing, I believe there are some considerations I should take into account that make this airline stock less attractive. I consider management to have overlooked the risks of inflation when forecasting the rise in passenger numbers and I don’t think the rebound will be as speedy as expected.

Alongside this, IAG has a high €11.6bn debt load. As debt repayments become more expensive, less cash will be available to invest in opportunities that could improve long-term returns. The dividend also doesn’t look to be returning any time soon to sweeten the deal for me.

To me, the risks seem to outweigh the possible benefits from the fall in the IAG share price so I do not think the share price is about to take off. I am resisting adding this airline stock to my portfolio for now.

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.

Finlay Blair 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.

More on Investing Articles

Arrow symbol glowing amid black arrow symbols on black background.
Investing Articles

An under-the-radar FTSE 100 stock to combat stagflation fears

As the share price of this blue-chip FTSE 100 stock falls below Covid-levels, why I added it to my portfolio.

Read more »

Man smiling and working on laptop
Investing Articles

This stock market sell-off could be my buying opportunity of the decade

The market sell-off has been brutal, but this Fool thinks it offers him a compelling opportunity to make big money.

Read more »

Typical street lined with terraced houses and parked cars
Investing Articles

After falling 60%, is the Ocado share price a bargain?

The Ocado share price has fallen heavily in the past year. But our writer is still not buying it for…

Read more »

Hedge shaped as the pound symbol inside a glass piggy bank
Investing Articles

A question investors need to ask about the Woodbois share price

The Woodbois share price has declined a little from its peak in early May. Does that mean I should buy…

Read more »

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.
Investing Articles

3 value stocks I’d buy right now

Roland Head thinks market conditions could favour value stocks over the coming year. He’s found three he’d like to buy…

Read more »

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.
Investing Articles

These 5 FTSE 100 shares have crashed in 2022. I’d buy one now

These five FTSE 100 shares have plunged in value over the past six months. But I believe one of these…

Read more »

man in shirt using computer and smiling while working in the office
Investing Articles

Is Scottish Mortgage Investment Trust now a bargain growth stock?

The Scottish Mortgage Investment Trust share price has plummeted nearly 50% from its 52-week high. Is this a great opportunity…

Read more »

A couple celebrating moving in to a new home
Investing Articles

2 key stock picks for reliable passive income

I’m looking at stocks that can deliver reliable passive income to complement my growth picks, and I think I’ve found…

Read more »