The International Consolidated Airlines Group’s [IAG] share price is hovering above multi-year lows, as the BA and Iberia Airlines owner wrestles with the devastating financial impact wrought by the global coronavirus pandemic. IAG’s share price closed last Friday at 109p, 25.95% above its 52-week low of 86.54p set on 25 September, but a long-haul flight away from its pre-pandemic levels.
How bad were IAG's latest results?
IAG’s share price felt the impact of the Covid-19 pandemic following the company’s latest results for its third quarter, which were released eight days earlier than scheduled last Thursday. IAG confirmed a third-quarter loss of €1.3bn, worse than the expected €920m loss, and in sharp contrast to its operating profit of €1.4bn reported for Q3 2019. The loss also meant a Q3 revenue fall of 83%, to €1.2bn, versus €7.3bn in the same period a year earlier. The contrast between this year and last is not surprising as passenger traffic numbers in Q3 plummeted by a whopping 88%.
The revelation of a huge drop in revenue in its latest results follows an admission by recently deposed CEO Alex Cruz that the airline is burning through $26m a day and fighting for survival — a stark reminder of the seismic challenges facing the industry amid the ongoing pandemic.
IAG’s share price on turbulent ride
IAG’s share price was notably volatile following the unexpectedly early results release, initially dropping by 5.68% from 100.45p to an intraday low at 94.74p, before recovering to finish 4.38% higher on the day at 104.85p. IAG’s share price may have been buoyed by the company’s reassurance over its “strong” liquidity position, with €6.6bn of cash and lending facilities.
IAG's cash and lending facilities
However, this tentative recovery can’t disguise the fact that IAG’s share price has been on a sharp descent this year, falling 75.94% from its year-high at 453.06p on 17 January to last Friday’s 109p closing price.
Investors should buckle up for the long haul
Just 187,000 people flew with British Airways in the first week of September, a sharp decrease from the 1 million figure a year ago. The company has now axed 8,000 jobs, with plans to cut a further 5,000.
CMC Markets chief market analyst, Michael Hewson, predicts more cuts will be needed to ride out this prolonged storm: "While Cruz has undoubtedly paid the price for a litany of problems outside of his control, the fact remains that to survive the airline will probably need to shrink a lot more, having already closed its Gatwick hub." Hewson adds, "With airline passengers not expected to return to 2019 levels until 2024, the airline has bought itself some time with the completion of a €2.75bn rights issue, however second-wave concerns across Europe could well signal further pain for the sector."
“With airline passengers not expected to return to 2019 levels until 2024, the airline has bought itself some time with the completion of a €2.75bn rights issue, however second-wave concerns across Europe could well signal further pain for the sector.” - Michael Hewson, chieft market analyst at CMC Markets
IAG slashed capacity at the start of September in response to new quarantine measures introduced across Europe, but the company said demand has been even weaker than expected since then. IAG now plans to operate at 30% of its normal capacity in Q4, a reduction on its previous estimate that it would be able to function at 40%.
IAG cited the spread of lockdowns across Europe and the slow adoption of rapid testing at airports which, once implemented, would stop passengers having to quarantine.
What's the outlook for IAG's share price?
IAG has a consensus Buy rating, based on 10 Buy ratings, 7 Hold ratings, and no Sell ratings, with a consensus price target of 298.94p, according to MarketBeat. That price target represents a 174.25% upside for IAG’s share price based on last week’s close at 109p. Berenberg Bank supports this rating, reiterating its own Buy rating on 10 September, although it did lower its target price from 300p to 260p.
Based on the analysts’ outlook and its current low level historically, IAG’s share price appears to represent a potential buy opportunity, but as The Times’ Tempus column put it last week, “the journey will be like a flight in BA economy to New York: a long haul and not particularly comfortable.”
|PE Ratio (TTM)||0.58|
|Quarterly Revenue Growth (YoY)||-89.50%|
IAG's share price vitals, Yahoo Finance, 29 October 2020