With many investors taking holidays and lower liquidity, we can see stock market moves exacerbated over the December holiday season. And with bad news out over the weekend, the FTSE 100 is being sold heavily today already. One of the worst performers so far in the sell-off is International Consolidated Airlines Group (LSE:IAG). Its share price is down 10.8% as I write, trading just below 140p. What’s going on here?
Bad news for IAG shares
The IAG share price has been seen as a proxy for the wider airline industry in 2020. It’s also been used as a stock to buy or sell on risk sentiment in general. For example, positive vaccine news out last month drove the share price over 35% higher on a single day. From the beginning of November, the IAG share price is actually up almost 50%. This was starting from a low base, but still highlights the recent improving mood of investors about the outlook for 2021.
Unfortunately, the sensitivity the stock has to Covid-19 is the main driver in the fall today. News about a virus mutation in the UK has led to Europe closing borders. Travel plans, along with enhanced lockdowns in key airport locations around London, are all bad news for the IAG share price. The implications are that the airlines operating under the IAG umbrella (including British Airways) will be hampered by the latest developments.
Bad timing
Another concern that will be on investors’ minds is the recent rumours that the acquisition of Air Europa has now been completed. The process has been ongoing for over a year now, with IAG wanting it completed by the end of this year. Although we wait for official confirmation that it has been completed, it comes at a bad time.
The purchase price has allegedly been reduced significantly, but I still don’t think now’s the time to be acquiring companies. IAG (and the share price) is in a fragile state anyway. Operating losses to the end of Q3 stood at £2.93bn. Unneeded fuel and FX hedges cost an extra £2.5bn on top of this. Even with a deferment of payment for Air Europa, I think the deal should have been put on hold. Investors seem to agree with me, expressing their concern by selling IAG shares.
If the above developments with the virus hadn’t occurred, you could make an argument that the purchase was a bold but good move. Reducing virus numbers and a successful vaccine roll-out could have seen a bumper crop of bookings and flights for next summer. The uncertainty of the virus and constantly changing news is the main reason I can’t justify buying IAG shares right now. What appeared to be a good buy a couple of days ago for me suddenly isn’t.
Instead, I’m looking to buy stocks that are less sensitive to Covid-19 developments. For example, I’m positive on Pershing Square Holdings. The fund has a wide remit of investment options, allowing it to steer clear of Covid-19-impacted businesses, if necessary.
