The International Consolidated Airlines Group (LSE: IAG) share has seen some serious swings since the pandemic started. Despite the massive blow to travel stocks from the pandemic, the FTSE 100 aviation giant did not hit rock bottom till October 2020. After a brief time as a penny stock, it was rescued by vaccine developments in November, and there was no looking back for it.
By April this year, it had reached a one-year peak of 217p. But has been sliding downwards since. It is now down by 22% from its highs. I think this is a good time to buy the IAG stock. In fact, I already did.
To understand why it can fly, I think it is essential to first look at why it fell in the first place. Four reasons come to mind.
4 reasons why the IAG share price fell
One, the fall in the IAG share price has a bigger context. Many other cyclical stocks whose prices rose sharply after the stock market rally of November, have slipped too. I reckon as they became pricey, investors sold them off, leading to a share price fall.
Two, fresh fears of the pandemic’s spread have rocked the stock markets recently. Coronavirus cases have been rising, especially those associated with the Delta variant. The FTSE 100 index even had a mini-meltdown las week, impacting all stocks.
Three, freedom day has finally happened in the UK, but it was delayed by a month. As a result, I reckon a potential stock market pickup has been delayed. And even now, we have been asked to exercise caution when outdoors, which could impact investor sentiment.
Finally, rising inflation is bad news for travel stocks. Travel by individuals and households is a discretionary spending, which consumers reduce when there are other demands on their income. Inflation has rising in the past few months. If it continues to remain so, the travel demand may not pick up sustainably.
Also, fuel costs are a concern for IAG. Crude oil prices have run up, which will either be passed on to customers or absorbed by airlines at an already financially difficult time for them. Neither is a good solution for these stocks.
Why it can rise now
But there is another side to these challenges as well. If investors are rotating their investment across stocks, it also means that eventually, their interest will return to the likes of IAG.
Also, there is evidence that even while coronavirus cases are rising, they are less severe now. In other words, vaccines are doing their work and travel can be safer. Further, many experts believe that high inflation will not stick around for much longer, so it need not impact travel companies significantly overtime.
Despite all this, the IAG share price is at less than half its pre-pandemic levels. Even accounting for the drag of the pandemic on its finance, I think the stock can start rising as travel becomes more routine again and improvements start showing in its financials. That is why I bought it.
Manika Premsingh owns shares of International Consolidated Airlines Group. 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.