It has been a seriously bad year for International Consolidated Airlines (LSE: IAG) shareholders. Airlines and related stocks suffered more than most from the Covid-19 lockdowns. And the IAG share price has lost more than 75% of its value in 2020.
From the current share price, a doubling still wouldn’t get close to pre-pandemic levels. And looking at the volatility of the past year, there must be a strong chance of IAG shares doubling and halving multiple times before the next 12 months are out. But that’s not what I mean. No, I’m thinking about whether IAG can end 2021 ahead in a sustainable way that will provide the foundations for a long-term recovery.
To try to answer that, I think we need to consider the factors currently holding IAG shares down. I see that as including the known damage that has already happened, and the unknown yet to come. The latter, the uncertainty, can have a disproportionately negative effect on a share price.
Losses and debt
That’s not trying to downplay the known damage. No, it’s already been horrible, as the IAG share price reflects. For the nine months to 30 September, the company reported a 71% fall in passenger revenue, leading to an operating loss of €5,955m. That includes exceptional items but, excluding those, we still saw a loss of €3,200m.
What’s the debt situation like after IAG’s capital raising activities? Back in 2019, net debt at 30 September stood at €7,571m. Twelve months later it was up to €11,096m. That’s a 47% jump. IAG’s debt was a bit high even in the good times, and now it’s massive.
I steer clear of companies with lots of debt, as they often have very little capacity to weather any future storms. And I think what’s happened to the IAG share price this year clearly shows the risks of businesses operating with high levels of debt funding.
So what about all these unknowns? The obvious big one is when will the Covid-19 pandemic have subsided sufficiently for flying to become safe again? That depends largely on how quickly the vaccines can be rolled out. Oh, and on no vaccine-defeating strains evolving. We’ve already seen the effect a bit of good news on the vaccine front can have on the IAG share price after November’s trial results saw it blip up a little.
IAG share price next year?
What will things look like in, say, six months’ time? Providing nothing further goes wrong (and there’s another unknown), a significant proportion of the world’s population should have been vaccinated. We might well be seeing travel starting to open up, and British Airways bookings strengthening once again.
Whatever happens, the knowing will make all the difference. Right now we can guess, we can predict, we can prognosticate. But we can’t know. Analysts will have more concrete figures on which to base forecasts. And investors will surely have more confidence in the accuracy of IAG share price valuations.
That alone should provide a more positive outlook. And, barring catastrophe, I can see the IAG share price being higher and more sustainable this time next year.
Alan Oscroft 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.