Travel chaos gripped UK airports last week, with flights cancelled and thousands of people left stranded. For British Airways-owner IAG, this was an unwelcome reminder of last summer’s disruption, which hit an industry still recovering from the pandemic. With IAG’s share price down over the past month, is now a good entry point?
- IAG’s share price down nearly 5% over past month.
- Disruption at UK airports leads to flight cancellations and stranded passengers.
- British Airways-owner IAG shares flat after a turbulent week.
IAG’s [IAG.L] share price has dipped 5% over the past month, although it remains up this year as demand returns to the aviation industry.
Causing some concern was the return of travel chaos at UK airports last week. Around 2,000 flights were cancelled on Monday after the National Air Traffic Services limited the number of planes cleared to land. Thousands of passengers were left stuck abroad, with some airlines telling them there was a limit on how much they could claim for overnight accommodation.
British Airways (BA) said that there were “significant and unavoidable delays and cancellations” as the industry scrambled to resume a normal schedule.
Despite the chaos, BA-owner IAG’s share price opened higher on Tuesday following the bank holiday. By the end of the week, the stock closed up almost 1%. It was a similar story at low-cost rival easyJet [EZJ.L], which gained almost 3% last week.
By midweek, flights to and from the UK had largely returned to normal. Secretary of State for Transport Mark Harper said that last Monday’s disruption was the worst incident of its kind in nearly a decade, and promised an independent review.
Disruption Comes at Bad Time for IAG Share Price
IAG’s share price has flown to a near 29% this year, but for shareholders the recent disruption will be an unwelcome reminder of last summer’s chaos. Back then, airports struggled to hire enough staff to meet demand following pandemic-era layoffs. That led to cancelled flights and IAG’s share price dropping over 14% during summer 2022.
Demand has returned to the aviation industry after the pandemic. IAG’s second quarter operating profits came in at €1.25bn, up from €295m for the same period last year. Boosting sales was a 9.5% hike in ticket prices during the quarter, partly to offset higher fuel costs.
During the earnings call, the IAG CEO said that customer demand was strong, “particularly for leisure travel”, and that plans to support the “busy summer period were already in place”. Anything that could disrupt the post-pandemic recovery will be a concern for IAG’s top guns.
Ticket sales aren’t the only thing propelling IAG’s sales. Revenue from IAG’s ‘other revenue’ category, which includes things like its loyalty programme, more than doubled, to nearly £2bn in 2022.
Sales from add-ons make up around a fifth of global airline revenue, according to research from Ideaworks. Susannah Streeter, an analyst at Hargreaves Lansdown, says these add-ons are a “big cushion to the bottom line” for airlines. However, Streeter cautions that, while “bookings remain strong in the months ahead”, the cost of living crisis could make customers more “sensitive” to the cost of add-ons.
IAG Share Price Forecast
IAG’s share price has soared this year as demand finally returns to the aviation industry. But a decline in altitude over the past month sees IAG shares hovering just above its 50-day average of 161.15p.
A key resistance level for IAG shares could be 172p. On 31 July the stock hit this level and has been trending lower ever since, closing Friday at around the 162p level. At the start of February, IAG’s share price hit the similar 173p level (itself a 52-week high) before declining to around 133p by mid-March.
Analysts see some upside to IAG’s share price. Bank of America Merrill Lynch upped its price target from 240p to 260p, noting that IAG’s second quarter results topped its own forecast by 28% and the consensus forecast by 40%. Deutsche Bank trimmed its price target on IAG in July from 200p to 165p. UBS has a 180p target on the stock, while Barclays is aiming for 170p.
IAG share price has a 205.4p median price target from analysts; hitting this would see a 28.9% upside on Friday’s close.
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