The Motley Fool

Why is the IAG share price on a downward trajectory?

British Airways
Image source: British Airways

It’s been a rough 18 months for the International Consolidated Airlines (LSE:IAG) share price. Even after making a slight recovery, the stock has returned to a downward trajectory. In fact, over the last six months, it’s fallen by over 30%. While its 12-month performance is still positive at around 15%, this may soon change if the IAG share price doesn’t change direction. Let’s take a closer look at what’s going on.

The decline of the IAG share price

Like many travel businesses, the pandemic has wreaked havoc on IAG’s operations. The vaccine rollout did improve its situation as travel restrictions started getting lifted. That’s why shares of easyJet and Ryanair have been able to perform relatively well in 2021.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

Unfortunately, IAG hasn’t had the same privilege. The airline focuses on long-haul international flights rather than short trips across Europe. More specifically, it dominates the UK-US transatlantic flight path. In a pre-pandemic world, this proved to be a lucrative venture. But today, the route remains beset by travel restrictions. And just last month, the European Union voted to block all non-essential travel from the US to reduce the spread of the Delta variant.

Needless to say, this is not good news. And it will most likely add pressure to the already limping passenger numbers. According to the latest half-year report, passenger capacity for the remainder of 2021 is estimated to be around 45% of 2019 levels. However, this was before the newest set of UK-US travel restrictions were issued. And by comparison, easyJet is aiming closer to 60%.

Knowing all that, the fall of the IAG share price doesn’t seem too surprising.

It’s not all bad news

Despite the underwhelming performance, there are some encouraging signs of recovery. In the second quarter of 2021, passenger revenue, while still firmly below pre-pandemic levels, was about 325% higher than a year ago. Meanwhile, income generated from hauling cargo is on the rise. Over the last six months, it’s up 25% compared to 2020 and 38% versus 2019.

This revenue stream is much smaller than transporting passengers. However, it has helped mitigate some of the negative impacts. Combining this with various cost-cutting efforts, the operating loss for the first two quarters of this year came in at around €2.05bn. That’s down from €3.81bn in 2020. Obviously, that’s good news for IAG and its share price.

Beyond existing operations, management has begun exploring the idea of launching its own low-cost short-haul airline to compete with easyJet. This seems like a prudent move, especially if international travel restrictions are going to be in place for a prolonged period of time.

The IAG share price has its risks

The bottom line

All things considered, I’m avoiding this business for now. The management team’s efforts appear to be slowly paying off. But the recovery of the IAG share price seems to be determined by external factors beyond their control. In my experience, that’s not a good trait for any business to have.

That's why another stock has caught my attention this week...

The high-calibre small-cap stock flying under the City’s radar

Adventurous investors like you won’t want to miss out on what could be a truly astonishing opportunity…

You see, over the past three years, this AIM-listed company has been quietly powering ahead… rewarding its shareholders with generous share price growth thanks to a carefully orchestrated ‘buy and build’ strategy.

And with a first-class management team at the helm, a proven, well-executed business model, plus market-leading positions in high-margin, niche products… our analysts believe there’s still plenty more potential growth in the pipeline.

Here’s your chance to discover exactly what has got our Motley Fool UK investment team all hot-under-the-collar about this tiny £350+ million enterprise… inside a specially prepared free investment report.

But here’s the really exciting part… right now, we believe many UK investors have quite simply never heard of this company before!

Click here to claim your copy of this special investment report — and we’ll tell you the name of this Top Small-Cap Stock… free of charge!

Zaven Boyrazian 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.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.