International Consolidated Airlines Group (LSE:IAG) is an airline conglomerate. It owns well-known brands including British Airways and Iberia. The IAG share price was battered during the pandemic as international travel ground to a halt. Down 36% in the past year, it is currently trading at 124p. I already own IAG shares, but should I now buy more as demand recovers? Let’s take a closer look.
Demand for international travel is growing
In recent months, the operating environment for IAG has improved markedly. As the pandemic has mutated into less severe variants, a vast number of countries have rolled back entry requirements, like vaccination certificates and testing.
This means that international travel is much easier than it has been over the last two years. IAG also holds the advantage over short-haul competitors, like easyJet and Wizz Air, because it operates on a global level through British Airways, Iberia, and Aer Lingus. This means that it is less vulnerable to regional issues, like the war in Ukraine.
The figures also show that demand is recovering. For the three months to 31 March, passenger capacity was 65% of 2019 levels. This was an improvement from 58% in the previous quarter.
The company expects capacity for 2022 to average at 80%. While the uptick in demand is great news for IAG, it has struggled to keep up.
When the pandemic struck, it was forced to reduce its workforce to survive. It is now working against the clock to recruit new cabin crew, with British Airways even offering a £1,000 sign-on bonus.
The staff shortages have inevitably led to flight cancellations and, until recruitment is complete, this trend of cancelled flights may continue. This could be bad news for IAG shares.
Nevertheless, I think that trying to meet heightened demand is a good problem to have for the firm.
Improving financial results
Recent financial results also indicate that things are going in the right direction. Between 2020 and 2021, revenue increased from €7.8bn to €8.4bn.
What’s more, pre-tax losses shrunk from just under €8bn to around €3.5bn over the same time period. The company has also stated that it expects to return to profit in 2022 amid increased demand for international travel.
I’m also thinking of buying more IAG shares because they may be cheap. By comparing forward price-to-earnings (P/E) ratios, I can better understand if a business is under- or overvalued.
IAG has a forward P/E ratio of 34.25, which is significantly less than competitor easyJet. The latter has a forward P/E ratio of 227.27.
Overall, I’m going to buy more shares in IAG soon. Demand is recovering at pace and financial results are improving. I expect the second-quarter results, for the three months to 30 June, will be strong following a period of uninterrupted flying. While I would like to see the recruitment and cancellation issues resolved, I think these are short-term problems that will soon subside.
