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Why the IAG share price can fly now

British Airways
Image source: British Airways

The International Consolidated Airlines Group (LSE: IAG) released its numbers for the first half of 2021 yesterday to disappointed investors. When I was writing this article on Friday afternoon, the IAG share price was down by a huge 7%. As an investor in the stock, I was actually tempted to buy more. Because the way I see it, there is much to like in its update.

Let me explain. 

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Investors buy and sell in stock markets based on what they expect next of shares. So if a stock is rising, it is because it is expected to perform well, and vice versa. I think that IAG is one such stock. Travel demand is just about regaining health, which should be a good thing for aviation stocks. 

IAG’s numbers improved in the second quarter

In fact, IAG’s results released yesterday pointed towards this as well. For the quarter ending 30 June 2021, the airlines’ revenues are actually up by a whole 77% from last year, when travel had dwindled to almost nothing. Passenger revenue, in particular, has made gains, which is encouraging. 

Also, while its fuel costs were up significantly during the quarter, overall expenditure on operations was reduced. In its last update, IAG had flagged rising energy inflation as a source of concernIt is still loss-making of course, because even with some recovery, its business is not back to where it was pre-pandemic. But even the net loss has more than halved in the quarter. 

Some recovery is also reflected in its operating figures. Passengers carried increased by more than 10 times to 5.4m. Passenger capacity is also slated to increase. During the quarter, passenger capacity was still at a low 22% compared to 2019. The number pencilled in for the third quarter is at 45%, which is a healthy increase, helped by opening up of travel and the summer months. 

Financial weakness and virus fears persist

However, investors were more focused on the overall numbers for the first half of the year. These look much worse, because they cover the initial part of the year as well, when travel was far more restricted. Among other things, these numbers show an increase in net debt, which is up by a significant 24%. 

Also, continued fear of the pandemic may be spooking investors. While the stock markets are past the recent mini-meltdown, news on the virus does remain challenging. In the UK for instance, while the number of people testing positive for Covid-19 is declining, the number of deaths in the last week and even the patients admitted to hospitals have risen, as per the UK government’s daily data. Travel stocks are the first to be hit by such news. 

What I’d do now

Still, we have made a lot of progress since last year. And this includes the IAG share price, which is up 42%. It is still a fraction of what it was pre-pandemic, but that in itself is a good reason for me to consider loading up more on the stock.

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Manika Premsingh owns shares of International Consolidate 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.

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