Last week, International Consolidated Airlines Group (LSE:IAG) was the worst performer in the FTSE 100 index. The IAG share price lost 14.8%, to finish the week at 131p. Over a one-year period, the share price is down 20%. There was one clear reason for the fall last week, with the severity of it meaning that further losses could be on the horizon for the airline operator.
Travel restrictions following new variant
The IAG share price spent most of the week around the 150p level, but broke lower on Friday. In fact, almost all of the losses for the week came on Friday alone. This was due to the discovery and increased chatter around the new Covid-19 variant, now known as Omicron. News that this variant was spreading quickly and might have some resistance to vaccines worried investors around the world.
Although the FTSE 100 fell by 3.6% on Friday, the move by IAG shares easily exceeded this. The main reason for this underperformance was that airline stocks are going to suffer with borders tightening up again. The UK has already put South Africa and other nations back on the red list, with other nations introducing blocks on travel over the weekend.
This means that carriers within the IAG family will likely see less demand for new bookings, or have existing flight paths disrupted due to government restrictions.
Where the IAG share price goes from here
In terms of the future direction for IAG shares, I think it really depends on what stance investors take. If I think that this news is an overreaction, then 131p could be a great buying level. After all, the high this year was 222p, so close to double the current levels. The main reason that I could have this view is that investors might be overly worried about the virus news. If it’s easily contained, or if the vaccines still carry a high level of resistance to it, then there might not be any real reason for alarm.
On the other hand, IAG shares do have room to move lower. Last year, the share price dropped below 100p as losses mounted for the company and it didn’t look like travel demand would return any time soon. If we see more countries shutting borders over the winter period (as some have started to do completely), it could be a really tough trading period for the company.
It’s also important to remember that IAG is still loss-making, with demand in Q3 only at 43.4% of 2019 levels. It made a loss of €452m in the quarter, highlighting how the business struggled even before this news broke.
I think the IAG share price could fall further in coming weeks. It’s a stock that’s very sensitive to Covid-19 news, shown by the extent of the fall last week. As a result, I won’t be looking to buy the shares at the moment as I feel the risk is too high.
Jon Smith and The Motley Fool UK have 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.
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