The IAG (LSE: IAG) share price has jumped in value since the beginning of the year. Despite shares in the airline group printing one of the worst performances of any FTSE 100 stock in 2020, year-to-date, the shares have risen by 40%.
Unfortunately, investors who bought in a year ago are still underwater. Over the past 12 months, the stock is down 25%.
Past performance should never be used as a guide to future potential. So, just because the IAG share price has produced an outstanding return over the past few months doesn’t mean it’ll continue to do so. What’s more, just because the stock used to change hands for nearly 500p back in 2018 doesn’t mean it will ever return to this level.
Still, it seems to me as if the outlook for the global aviation industry is improving. And with that in mind, I’ve been taking a look at the airline. I want to establish if it could be worth adding the stock to my portfolio to invest in the global pandemic recovery.
IAG share price outlook
IAG’s 2020 results showed the extent of the group’s pain last year. The owner of the British Airways brand posted losses of nearly €8bn as Covid-19 restrictions cut passenger revenues by 75%. The airline’s been running around 20% of its capacity in the first few months of this year, which indicates how the organisation will perform the rest of this year.
We’re already nearing the end of the first quarter, which suggests the group’s revenues will be nowhere near 2019 levels in 2021. If the airline spends the whole of the first quarter running at just 20% of capacity, it will need to run at 100%+ capacity throughout the remaining three quarters.
That seems unlikely. With travel restrictions in and out of the UK set to last until June, the company’s revenues and profits look set to remain under pressure.
So, while the outlook for the IAG share price has improved materially over the past six months, there’s still an incredible amount of uncertainty surrounding the company’s future.
If international travel resumes from the UK in the second half, demand could recover quite quickly in the most optimistic scenario. This would be incredibly positive for the company’s recovery. If demand recovers to 100% of 2019 levels in the second half, IAG could still report a strong year. That would put it on the front foot for 2022.
If the group sees an upswing in bookings, it could give management confidence to increase capacity, accelerating the recovery in 2022 and beyond. However, this is the most optimistic scenario. In the base case, IAG may report revenues 50% or more below 2019 levels.
As such, I think there’s still time for me to buy IAG shares. The stock has rallied substantially this year, but there’s still a tremendous amount of uncertainty surrounding the business. When this uncertainty dissipates and revenues recover, I think the IAG share price could take off. That’s why I’d buy the stock right now.
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Rupert Hargreaves 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.