International Consolidated Airlines Group (LSE: IAG) is a FTSE 100 company comprising five airlines, including British Airways and Aer Lingus, and other cargo operations. Over the past two years, IAG stock has been battered by crippling travel restrictions enacted in response to the Covid-19 pandemic. While cargo flights continued to provide some income, the company and its five airlines have been as good as grounded for most of the pandemic. The real question for me, however, is should IAG be considered as an addition to my portfolio?
The 2020 Annual Report states that passenger numbers were down 66.5% from 2019 levels. In the second quarter of 2021, capacity was still only 21.9% of 2019 levels. Clearly, a recovery will take time, relying on fewer international restrictions and confidence from passengers. With many European states locking down, IAG’s business will inevitably be affected. This is because all of its airlines operate throughout Europe. In the longer term, management will have to address a debt pile that has increased from €7.9bn to €12.1bn. This need was demonstrated, for instance, by the £2.5bn rights issue that was launched in the summer of 2020.
The news is not all bad, though. Transatlantic travel resumed at the beginning of November 2021, which, considering it makes up about 30% of Available Seat Kilometres (ASKs), is something of a godsend for IAG. The management has also taken the opportunity to bring forward the retirement of old aircraft, including British Airways’ Boeing 747s and Iberia’s Airbus A340s. While the new Omicron variant has caused alarm on account of its greater transmissibility, it does not appear to cause such severe illness, and the chances of those crippling international restrictions returning seem low.
From a technical analysis perspective, the share price bounced off a low of 88p in October 2020 and currently trades anywhere between 130p and 160p. It is interesting to note that the share price fell 15% with news of the Omicron variant, but it has nearly recovered and it appears that this news only caused a temporary price correction. Nonetheless, the prospect of future variants — together with the arbitrary nature of international lockdowns — are preventing IAG’s price returning to pre-pandemic levels. This is reflected in the sideways price action we are currently seeing. On the other hand, if these variants are indeed less severe and governments do not lockdown for a prolonged period of time, I think investor confidence will have a very positive impact on IAG’s share price. Personally, I will be continuing to steadily buy up this stock, especially when there are dips in price. This is because I believe there is significant upside potential in the medium term – the sky’s the limit!
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Andrew Woods owns shares in IAG. 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.