The International Consolidated Airlines Group (LSE: IAG) share price has been on a rollercoaster ride during the past year.
The FTSE 100 travel giant soared in November and through the spring on news of a Covid-19 vaccine breakthrough and hopes that travel restrictions would be rolled back.
However, IAG’s share price has been backpeddling over the summer as the Delta variant has run riot and concerns over travel barriers being tightened further have grown.
Reasons to be careful
The IAG share price has now lost almost all of its gains over the past year. There are several reasons why it could keep falling too. These include:
1) Rising Covid-19 infection rates. The number of global coronavirus cases is increasing again as vaccine rollouts slow in the West and the immunity of those already jabbed begins to wear off. The Delta variant is also causing the crisis to worsen and more versions of Covid-19 could come down the tracks to stop IAG returning to full capacity. In the second quarter the British Airways owner was running at just 21.9% of 2019 capacity.
2) Serious economic bumps. Tough economic conditions mean IAG might struggle to sell tickets even if travel restrictions don’t tighten. The OECD recently warned that the UK economy is running out of puff. Latest US non-farm payrolls data last week, which showed just 235,000 jobs added in August versus an expected 720,000, adds more worry for cyclical shares like this. Data from the eurozone is beginning to slowly deteriorate too.
Why IAG’s share price could soar
The near-term outlook for the IAG share price is clearly very uncertain. But as someone who invests with a long-term view, I might still be tempted to buy the FTSE 100 stock following the recent dip.
Critically, it seems IAG currently has plenty of financial strength to fly through the crisis. A combination of cost-cutting, fresh fundraising measures and pension payment deferrals gave the business robust liquidity of €10.2bn as of June. Even if its planes take longer to return to full capacity this should give the business plenty of wiggle room.
And I expect IAG to be near the front when it comes to riding the travel industry recovery. The Transatlantic routes it services should resume solid growth. And the FTSE 100 firm will be in better shape to exploit it following the exit of Norwegian Airlines from this long-haul route.
As well, through its Aer Lingus and Vueling brands, IAG has exposure to low-cost travel, an area of the market which is tipped to lead the industry rebound. If recent reports are true the aviation giant could be about to launch a new budget airline at Gatwick to further exploit this opportunity as well.
My verdict
Clearly, this FTSE 100 firm isn’t without risk. But I think it has the means to survive these tough conditions and deliver terrific shareholder profits. I also think the IAG share price is very attractive at current levels near 155p.
