Why the IAG share price recovery might still take a long time

International Consolidated Airlines (LSE: IAG) has recovered impressively since its pandemic pummelling. The IAG share price got off to a strong start to 2021, but since the Spring it has been falling back again. Still, we are looking at a healthy 12-month gain of 60% as of market close Tuesday.

But I’ve thought for some time that the recovery has perhaps been a bit premature, and might not be sustainable. Might the current valuation reflect too rosy an outlook for international air travel? A snippet of news has just reinforced that question.

We want to see the British Airways owner getting its passenger volumes and profits back to 2019 levels as soon as possible. The longer it takes, the more I reckon investors will lose patience. And that could lead to a long period of going nowhere for the IAG share price.

Boeing has previously suggested that air travel might not get back to normal until late 2023, or even early 2024. I’m now wondering it that might be too optimistic. International Consolidated, with its long-haul focus, is likely to be at the tail-end of the return to the skies, with short-haul airlines recovering more quickly.

September figures from London’s Heathrow Airport showed passenger numbers closing in on 40% of pre-pandemic levels, which didn’t seem like a bad start at the time. But now, the airport’s boss, John Holland-Kaye, has told the BBC that we’re still only up to around 45% of 2019 volumes.

Recovery not until 2026?

He also warned that we might not see a full recovery in air traffic until 2026. Holland-Kaye’s pessimism does come at a time when Heathrow is being refused permission to raise its charges as high as it wants. But it is becoming increasingly clear that our return to the skies needs more than just people wanting to fly.

The potential demand appears to be there, after two summers of staying at home instead of jetting off for beaches and booze. But the entire infrastructure supporting the industry has taken a severe hit. Supply chain problems, staff shortages, and other structural hurdles are all getting in the way.

Heathrow, of course, is just one airport. But being the British Airways main hub, it is a rather important one. So what does all this mean for the IAG share price?

IAG share price outlook

We have Q3 results due on 5 November, though I don’t expect them to be too explosive. For the second quarter, IAG saw reported passenger numbers at approximately 22% of 2019 levels. But that was before travel restrictions started loosening. 

At the time, the company told us it expects to see Q3 passenger numbers back to around 45% of 2019. If it can do better than that, the shares could get a boost. But if traffic falls short, more might join me in distrusting the 2021 optimism.

Now, I could well be wrong here, and we could see further growth. If bookings look like they’re doing well, my fears might go right out of the window. I am, after all, the most bearish investor I know when it comes to airlines. But right now, I just don’t see enough safety margin in the IAG share price to want to add the stock to my portfolio.

Alan Oscroft 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.