After flying through the coronavirus pandemic storm, it looked as if the IAG (LSE: IAG) share price was on track to hit clearer skies in 2022.
Unfortunately, it is starting to look like the group is heading towards another patch of turbulence. This is clouding the company’s outlook and making it harder for me to assess whether or not this enterprise can claw back some of the losses it booked throughout the pandemic in the year ahead.
IAG share price threats
The IAG group is made up of a collection of airlines, including British Airways. All of these companies, excluding BA, are located in Europe, which might become an issue for the group. Under EU rules, airlines operating out of the region have to be majority-owned by EU domiciled businesses.
As the UK is no longer part of the EU, and negotiations to remedy this issue are going nowhere, there is growing speculation that IAG could be forced to divest BA and re-domicile in Europe.
It is difficult to understand how such a change would impact the group. BA operates some of its most lucrative routes across the Atlantic. These provide valuable cash flow for the rest of the business.
IAG works because it can use economies of scale to push down costs and increase synergies. If it is broken up, it is impossible to say what sort of impact this will have on the individual businesses.
At the same time, the company has to fight off increasingly aggressive competitors. Low-cost peer Ryanair recently announced that it would be rolling out significant discounts on its flights to encourage consumers to return to the skies. This challenge could draw IAG into a fare war. That is the last thing the corporation needs.
These are the biggest challenges facing the IAG share price today, but the company also has plenty of opportunities.
Opportunities on the horizon
The global aviation market is recovering from the pandemic. There have been some bumps along the way, but the overall trend suggests consumers are returning to the skies.
It also looks as if countries are rolling back travel bans. Research shows these have been relatively ineffective against containing the spread of the highly contagious coronavirus.
These themes suggest that the company does have some tailwinds behind it that should help support its recovery in the months and years ahead. City analysts believe the enterprise will almost break even this year, based on current trends. That could be a strong positive for the IAG share price.
Even a modest improvement in this forecast could see the company return to profit, which would almost certainly improve investor sentiment towards the business.
However, even after considering these favourable factors, I think the outlook for the enterprise is incredibly uncertain. As such, I would not buy the stock for my portfolio today. I would rather wait to see how the operating environment develops over the next 12 months.
Rupert Hargreaves 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.
This post was originally published on Motley Fool
