It’s easy to understand why the IAG (LSE: IAG) share price took a beating during 2020. Global travel restrictions virtually shut down international travel and as such, IAG shares slumped over 60% for the year.
However, a combination of positive results and easing restrictions has given IAG new wind over the past few months, with the shares up 8.7% year-to-date. Can this trend continue? Let’s take a closer look.
Encouraging travel data
As mentioned, the global easing of travel restrictions over the past few months has vastly increased footfall across the travel sector. For example, in the first week of 2021, there were 71,738 European flights. Fast forward to the first week of 2022, that number almost doubled to 139,438. In addition to this, Skyscanner – an online travel booking agency – said that bookings for return flights to the UK this summer were up almost 400% in January compared to December.
These numbers have already filtered down into IAG’s business. In its latest trading update, it reported a passenger capacity jump from 21.9% to 43.3% of 2019 levels. In addition to this, its cargo transport has also seen a heft capacity rise, to 73.4% of pre-pandemic levels. IAG releases its full-year results on 25 February and if it sees more results like these, then I would expect the share price to increase further.
There is still significant progress to be made, but it seems that IAG is moving in the right direction. What’s more, Australia announced the reopening of its international borders last week. As confidence in the travel sector grows, the IAG share price could continue to climb.
Headwinds for the IAG share price
The most obvious challenge that IAG must contend with is the continuing threat the pandemic poses. Although restrictions are easing, there is still a high possibility that the virus could cause more disruptions throughout the year. If this is the case, it could place a lid on the growth of the IAG share price.
In addition to this, the pandemic left IAG with over €12bn net debt. This was the case across many other airlines, as the costs of maintaining grounded aircraft piled up. With interest rates creeping up, these debts could be quickly magnified unless addressed soon.
A final risk for the IAG share price is the steep competition that the firm faces from other flight providers. For example, competing airline Ryanair recently announced it would be offering big discounts to incentivise customers. This could draw IAG into a price war, which is the last thing it needs while trying to rebuild its business.
The verdict
Overall, the current IAG share price seem seems to me to be in a good place for growth right now. I think investors are realising the impacts of increased footfall, which is helping push the shares up.
However, with pandemic uncertainty and hefty debts on its plate, I’m not comfortable buying the stock just yet. I’m going to wait for the full-year results, and to see how IAG fares over the course of the next few months, before considering adding it to my portfolio.
