COVID-19, grounded planes and closed borders — 2020 wasn’t good for British Airways (BA) owner IAG’s [IAG] share price. The stock dropped 74.45% last year, but the real question for investors is whether 2021 could be better for IAG’s share price.
Already things are starting to look up, with IAG’s share price up 2.1% so far this year — that’s despite renewed restrictions on air travel, last year’s huge losses in revenue and upcoming litigation. With vaccines being rolled out and customers hoping for foreign travel in 2021, is it now time to buy IAG’s share price?
Why should investors care about IAG’s share price?
Litigation over data breach
IAG’s share price plummeted last year as it faced an unprecedented, international health crisis. Now core airline BA faces the biggest ever group privacy claim in the UK after an incident that exposed 400,000 client details, including payment card details, in a 2018 privacy breach.
As reported by the Financial Times on 12 January, 16,000 customers have joined the case, with the deadline for new applicants not until March. The breach led to a £20m fine from the UK’s data regulator in October and, in a letter seen by the FT, BA has indicated that it is prepared to settle the claims. Shareholders will be hoping that, by settling, BA will be able to leave the issue in its jet stream.
Summer could rescue IAG’s share price
This litigation around data breaches comes at a bad time for IAG. On 11 January, IAG’s share price dropped following the UK government’s decision to close air corridors into the country in response to new variants of the coronavirus. Now, a negative test is required for anyone entering the UK and the new measures will remain in place until at least 15 February.
The restrictions can’t expire soon enough as IAG airlines seek to tempt customers to the skies during the lucrative summer holiday season. Already there has been some good news with EasyJet [EZJ] saying that summer bookings were up 250% compared to last year. This saw IAG reverse the losses sustained at the start of the week, while EasyJet up and Ryanair [RYA] were also up.
"We know there is pent up demand — we have seen that every time restrictions have been relaxed, and so we know that people want to go on holiday as soon as they can," EasyJet CEO Johan Lundgren told the BBC last week.
“We know there is pent up demand — we have seen that every time restrictions have been relaxed, and so we know that people want to go on holiday as soon as they can” - EasyJet CEO Johan Lundgren
Where next for IAG’s share price?
Clearly, the pandemic and resulting travel restrictions have damaged the industry, with the International Air Transport Association estimating the sector will require between £52bn and £59bn in further cash support. BA itself secured a £2bn government loan in December to help it withstand the coronavirus’ impact. Disappointingly for current shareholders, the loan came with a temporary ban on dividend payouts.
In December, the carrier cut 15 long haul routes, along with temporarily cancelling routes to Sydney, Bangkok and San Jose during the summer. The airline has already made 10,000 staff redundant and has predicted the airline industry won’t get back to pre-pandemic levels until 2023. This all adds up to BA trying to ride out the storm by cutting costs — something it needs to do after reporting a first-half loss of nearly £4bn.
BA's reported first-half loss
In the short-term, IAG’s share price is likely to be spurred higher by any easing of restrictions and progress on the vaccine rollout. The stock and wider travel sector ticked upwards following the EU approval of Moderna’s [MRNA] COVID-19 vaccine for emergency use and AstraZeneca [AZN] applying for vaccine use.
In the long-term, once a vaccine is rolled out, expectations will be for the travel sector to get off the ground. As the EasyJet bookings show, there is a pent up demand for travel, especially with millions having been forced to remain at home for the majority of 2020. The loan from the government should provide liquidity to get to that point.
According to Refinitiv data, analysts have put a $192.91 price target on IAG’s share price. Hitting this would see a 19.19% upside on the current share price. Of the 17 offering recommendations, three rate IAG a buy, nine outperform and five hold.
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