International Consolidated Airlines Group (LSE:IAG) saw a share price rally of 38% in February. Anyone who has followed the moves in IAG shares over the past year know that volatility has risen. Mainly due to the impact of the pandemic, IAG has really struggled to maintain the level of financial performance investors would have been hoping for. So although it was the best-performing share in February, it’s still down 48% when we broaden the timeline to a year. Why the short-term pop?
Full-year results
They say that a week is a long time in politics. I’d like to tweak that and say that a week is a long time in the stock market — a very long time. So much information gets digested every day that changes how companies are perceived. IAG shares have benefited from new information both about the firm specifically and the broader economy.
Let’s start with the most recent news. IAG released full-year 2020 results late last week. They showed a stomach-churning loss of €7bn, which includes the consolidated performance from British Airways and Aer Lingus. The main reason for the loss was fairly obvious as passenger capacity was down. In Q4 2020, the group carried just 26.6% of the passengers it did in Q4 2019. For the year, it carried 33.5% of the 2019 numbers.
IAG shares actually finished the day higher after the results were released. Why? A lot of this is to do with expectations. The market was expecting a terrible report, and so the share price had already dropped well before this week. The results were bad, but not as bad as they could have been, hence the rally. For example, cash and other liquid assets have been increased to over €10bn. Cost-cutting measures have also reduced expenses, such as the recent deferment of pension contributions. Overall, the full-year results were bad, but better than expected.
IAG shares benefit from Covid recovery
Aside from business-specific reasons, IAG shares also benefited during February from positive sentiment. The travel industry is one of the sectors most sensitive to news around the vaccination rollout and lockdown easing. During the past month, we had plenty of positive news in this regard.
The UK vaccination programme has gathered pace, with over 20 million people vaccinated already. Alongside this, the UK plan to ease lockdown restrictions could mean a removal of all social distancing measures by June 21. These both give a shot in the arm (pun intended) to IAG shares. The airline group would be able to increase passenger capacity and flight numbers significantly in H2 if the above events remained on track.
IAG shares performed well in February as expectations are being built in to the share price. Investors try and think ahead, with some likely buying now as they think that performance later this year will improve. How high could the share price go? Well the 38% move has taken the share price back above 190p. The 2020 highs were circa 450p, so although this is a target to aim for, it’s still some way off.
