The International Consolidated Airlines Group (LSE:IAG) share price was one of the top performers in the FTSE 100 last week. By moving over 10% higher to close the week at 173p, it eclipsed all others bar Informa. There was a key short-term driver that helped push the IAG share price up, but personally I think that there are reasons to see long-term gains.
Easing restrictions helps to boost flying hours
The easing of further travel restrictions in the UK was the main push behind the rally in the IAG share price last week. News that fully vaccinated travelers will no longer need to take any form of test before or after arriving in the UK will certainly help boost international travel demand. This comes after measures were already slightly relaxed last month. It shows that there’s a clear path that the Government is taking to make it easier for travellers to come to or return to the UK.
For IAG, this is undoubtedly good news. Take one of the operators within the group — British Airways. Based at Heathrow, the airline caters mostly for long-haul flights into Europe and beyond. Being able to service customers who now feel comfortable travelling based on the latest rules should aid revenue.
In fact, online travel agency Skyscanner said that bookings for return travel from the UK this summer was up 394% in January compared to December.
The 10% jump in the IAG share price comes as investors price in the good news and IAG sees the expected increase in sales since the news broke.
Potential for the IAG share price to keep going
Personally, I think that there’s more to come. The IAG share price is still down 58% over a two-year period, taking in almost the full period of the pandemic. I’m not saying that all of this ground can be made up in the matter of a few months. But I do think it highlights that there’s still a lot of room for the shares to move higher before IAG hints at being overvalued.
In just a couple of weeks, full-year results for IAG will be released. This will include commentary from the management team on the outlook for 2022. I think that this will be key in determining the direction for the share price in the short term.
The latest results I have access to are for the nine months through to the end of September. These weren’t fantastic, but did provide enough positives to keep me optimistic for this year. For example, passenger capacity for Q3 was 43.4% of 2019, up from 21.9% in Q2. The finances also showed good liquidity of €10.6bn. This should help cash flow until revenue really starts to pick up again.
In terms of risk, the IAG share price is still very much at the mercy of the virus. Even though the UK is lifting restrictions, customers still might be concerned about Covid-19 levels and restrictions at their destinations. IAG also has been bleeding money since 2020, and so the net debt pile of over €12bn is also of concern.
But I’m positive overall and considering buying the shares after the full-year results are released.
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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