International Consolidated Airlines Group (LSE:IAG), along with many companies in the travel sector, has gone through a torrid time over the past few years. As a business that thrives on moving people around the globe, it was hit particularly hard as countries imposed tough entry requirements or outright bans.
IAG is one of the world’s largest airline groups, with a fleet of over 500 aircraft. It’s part of the FTSE 100 index and some of the brands that it owns include British Airways, Iberia and Aer Lingus.
The IAG share price has remained volatile since the start of the pandemic. Its low point came in October 2020 amid much uncertainty surrounding the virus. Despite its share price gaining over 80% since then, it remains 60% below pre-pandemic levels.
Travel conditions
Travel conditions have started to relax and there seems to be plenty of pent-up demand. Holidaymakers are keen to get away after several years of restrictions. Travel company TUI said recently that holiday bookings this summer were 19% higher than before the pandemic. It specifically pointed to a rise in long-haul trips to the Caribbean and Cape Verde, with entry restrictions less strict than some popular European destinations like Spain.
That sounds encouraging, and should bode well for IAG as long haul makes a significant contribution to sales. In fact, in the third quarter of 2021, long haul accounted for around 60% of passenger revenue for both BA and Iberia. Long-distance flights can be more profitable than shorter ones too. This is mainly due to significant cargo revenues and premium ticket sales.
IAG is the largest airline group operating around the North Atlantic. This makes the US an important market. And the country removed its travel ban in November. Other countries have since followed by relaxing entry requirements and the outlook is encouraging. As such, IAG expects the group to be operating at a big 90% capacity by the summer.
Bear in mind that some countries are likely to take longer to reopen due to stricter quarantine requirements. And although the outlook looks promising, the past few years have shown that Covid is an ever-changing virus. Any resurgence in more dangerous variants could disrupt IAG and the travel industry again.
Also, IAG is still loss-making. In November, it forecast a €3bn operating loss for the year. That said, it’s confident it can return to profitability in the current year.
Does the IAG share price appeal to me?
I won’t be buying IAG shares though. I’m not keen on airlines as I see too much competition and low profitability in general. But that’s not to say that the IAG share price can’t fly. In fact, for the reasons outlined above, I think the share price could do well over the coming months. The general conditions this year really could allow it to take off. But as a long-term investor in high-quality shares, there are plenty of other options that I’d buy instead.
Harshil Patel has no position in any of the shares mentioned. The Motley Fool UK has 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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