After quite a turbulent 2020, the International Consolidated Airlines (LSE:IAG) share price could be set to surge this year. While the stock is still trading firmly below pre-pandemic levels, it’s already climbed by double-digits since the start of 2022.
But can it continue to trend upward? And is now the time to add this business to my portfolio as a recovery investment? Let’s explore.
The IAG share price potential
It’s not hard to understand why this company took a beating at the start of the pandemic. With travel restrictions put firmly in place, the revenue stream dried up. But operating an airline business still has plenty of fixed costs even if the planes aren’t flying, such as airport fees, and maintenance.
With massive losses accumulating, it’s hardly surprising that the IAG share price collapsed by over 65% in 2020.
Fortunately, it seems the company was able to weather the storm. And while the travel sector has yet to fully recover, the operating environment is improving. Looking at the latest trading update, passenger capacity has jumped from 21.9% to 43.4% of 2019 levels. Meanwhile, its cargo transport exploits have reached 73.4% of pre-pandemic levels.
There’s obviously still a long way to go. But things seem to be moving in the right direction. And the recovery progress may have just been accelerated as Australia announced the re-opening of its borders to international travellers last week. As confidence returns to the sector, IAG could be set it hit its recovery milestones this year, sending its share price up in the process.
Taking a step back
As encouraging as the progress of the industry and IAG has been, there are still challenges ahead. The most obvious being a potential resurgence of Covid-19. If infection rates rise again, it’s possible that travel restrictions will be tightened once more.
Something else that’s caught my attention is heating competition within the short-haul market. For the most part, IAG focuses on long-distance journeys. However, management has been ramping up its investments into the short distance flight arena. And with Ryanair incentivising travellers with big discounts, the group’s pricing power over tickets is basically non-existent.
In other words, the company will likely be forced to cut ticket fares to retain customers. That’s obviously doesn’t bode well for IAG or its share price.
The bottom line
While the stakes are high, the company could be about to enjoy some favourable tailwinds. Management was aiming to hit a 60% passenger capacity level by the end of 2021. Whether that target was reached is currently unknown and will be revealed in the upcoming results later this month.
Assuming this goal is achieved, revenue could quickly start heading back in the right direction, with losses getting smaller at the same time. This could be enough to convince investors the worst is over, and the IAG share price could surge because of it.
So is now the time to buy? Personally, I’m going to wait for the full-year results to come out so I have a clearer picture of the recovery progress before committing to any investment in my portfolio.
Zaven Boyrazian 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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