The turbulent International Consolidated Airlines Group (LSE: IAG) share price is showing little sign of calming down. Prices of the FTSE 100 flier touched nine-month highs at around 220p last week, but they’ve slipped sharply again in recent hours. It’s now down 6% on Monday, due to fresh pandemic-related investor panic.
The IAG share price is still up around 42% over the past 12 months. But, at 195p, this UK leisure stock is still worth half of what it was at the start of 2020. Back in those pre-pandemic days the FTSE 100 share traded in the region of 430p.
So what now for IAG and its share price? And should I buy the British Airways owner for my Stocks and Shares ISA?
There are several reasons why I think the IAG share price could keep slipping in the short term:
#1: Holiday bookings fail to recover. IAG’s freshest slide comes after the UK government advised citizens at the weekend to keep holding off from booking holidays for the time being. The guidance is perhaps no surprise given the rampant rise in Covid-19 cases on mainland Europe since the beginning of 2021. The warning threatens to derail a recovery in ticket sales across IAG’s transatlantic routes too.
#2: Fuel costs grow. A recent rise in fuel costs is putting pressure on the profits that IAG’s significantly-reduced fleet are generating too. Brent oil prices recently touched 22-month peaks of approximately $70 a barrel. It’s also possible fuel prices will keep growing once lockdowns ease again and demand indicators improve.
#3: Rivals ramp up capacity. It’s true IAG will benefit from the steady erosion in the competition during the Covid-19 crisis. But the company could suffer from a sudden and significant ramping up of capacity from rival airlines. The likes of Wizz Air and Ryanair have stronger balance sheets that will allow them to increase activity when conditions improve. And, of course, the low-cost operators offer significant dangers to the IAG share price over the long-term
Reasons for an IAG share price recovery
I don’t think it’s all doom and gloom for the British Airways owner though. Indeed, there are several reasons why I think the IAG share price could recover strongly in 2021 and beyond. The company’s operations in the transatlantic and low-cost markets still offer plenty of profit opportunities over the next decade.
In the meantime, the company’s recent issuance of €1.2bn worth of bonds should help it glide through further Covid-19-related difficulties in 2021. The FTSE 100 business is also taking steps “to reduce [our] cost base and increase the proportion of variable costs to better match market demand.” This should create a much leaner profits-creating machine after the crisis.
City analysts also think losses will narrow sharply in 2021. A full-year figure of 26.7 euro cents per share is anticipated, down from the 122.6-cent loss of last year. There are clearly reasons why the IAG share price could recover strongly from its recent lows.
But, for the time being, I’m happy to buy other cheap UK shares instead.
Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Wizz Air Holdings. 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.