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Stock Watch

Will the IAG share price take flight after FY results?

IAG share price: the British Airways insignia on two planes

The aviation industry has been hit massively by the Covid-19 pandemic. Passenger numbers have been decimated, vast numbers of flights have been cancelled, and jobs have been cut as countries closed their borders and holidays began to feel like a distant memory under the coronavirus lockdowns.

It’s no surprise that the IAG share price has flatlined since being battered at the start of the pandemic, as it suffered a drop from 385p to 132p in March 2020. But with a roadmap out of lockdown in place, could there be an upturn following this week’s full-year results?

IAG share price hit by Q3 losses

The costs to the airline industry of the coronavirus pandemic were no better illustrated than when, at the end of Q3, British Airways owner IAG revealed it had lost £5.1bn, losing on average about £20m per day between January and September.

The numbers also revealed that the company had shed 10,000 jobs at BA and Aer Lingus at a cost of £250m. This slashed 42% off IAG’s wage bill, as the operator took measures to cut costs in dire circumstances.

Passenger traffic in Q3 fell by over 70%, and Q4 is unlikely to be any different. With new quarantine measures being introduced on international flights into England, along with tighter restrictions around Europe, these numbers could fall further in Q1 of this year.

Despite the lack of passengers and flights, IAG’s aircraft still have to be maintained, and kept serviceable for the time when airlines can start to look at operating a normal schedlue. The company suffered £1.6bn in hedging losses on fuel that was never delivered as the airline was unable to use it.

Hopes for a brighter 2021

Despite the gloom, there are a few glimmers of sunlight amid the seemingly impenetrable clouds. The IAG share price could be boosted by the roadmap out of lockdown announced by UK prime minister Boris Johnson. The news that holidays could be a genuine possibility by the end of summer has been a boost to the travel industry, with holiday firm Tui reporting that overseas holiday bookings rose 500% overnight.

Investors seem to have shared holidaymakers’ enthusiasm, as stocks across the travel industry soared overnight, with the IAG share price jumping from 170p to 190p as details of the plans emerged.

Government loan to help IAG

Unlike its French and German peers, IAG hasn’t gone cap in hand to the government for a bailout, though it has received a five-year £2bn loan backed by the UK government. This loan was designed to enhance liquidity and provide further “operational and strategic stability”.

At this particularly difficult time, airlines are taking whatever measures they can to boost cashflow. IAG secured £750m by selling Avios loyalty points to American Express. The points will be used for British Airways credit card rewards, and will help with IAG’s short-term liquidity.

What will happen to the IAG share price after the full-year results are announced at 7am on 26 February?

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