It’s been a tough year for International Consolidated Airlines Group (LSE: IAG). Being part of the aviation industry, it has seen consumer demand fall through the floor since the end of Q1. Even with some national lockdown restrictions lifted, reports show that demand for air travel is nowhere near where it needs to be for airlines to be optimistic. As a result, the IAG share price sits below 100p, having started the year above 250p.
In the latest development, the boss of British Airways (owned by IAG) is leaving with immediate effect. Alex Cruz’s departure follows Willie Walsh announcing he’s stepping down as head of the group shortly. The IAG share price has been choppy in the aftermath of the Cruz news, with it closing down 4% yesterday.
A share price reflecting reality
In a perfect world, the share price of a firm would reflect all public and private information available about it. We don’t live in such a world, but markets do try to accurately price the value of a firm at any point in time. So does the IAG share price reflect reality? In my opinion, yes.
The firm announced a half-year pre-tax loss of €4.2bn. It’s estimated over 10,000 people lost their jobs at BA this year as part of redundancy arrangements. Recently, Willie Walsh said the aviation industry was unlikely to see demand returning to levels seen last year until at least 2023.
All of those statements lead me to conclude that the slump seen in the IAG share price is warranted and makes the stock fair value at circa 97p. The question going forward is whether the stock becomes too cheap to ignore based on the future predictions.
Forward thinking for IAG
As an investor, I’m equally interested in the past as I am the future. I do think the way people will fly has changed for good, but I don’t think this means demand will remain low forever.
Good initiatives are springing up that could support a turnaround in the IAG share price. For example, news of a Covid-19 ‘passport’ via an app has come out. A trial of it could lead to reduced quarantine restrictions on landing, which should encourage more people to fly.
New BA boss Sean Doyle has spent 20 years at the firm. Therefore, he knows the business well enough to attempt a successful turnaround. Although he will be picking up a loss-making business, the aggressive cost cutting under Alex Cruz will at least allow him to focus more on the other side of the coin (growing revenue).
This won’t be a stock to hold for six months, but rather six years. The share price return could be substantial if a turnaround is successful, so I’d make sure to hold the stock within an ISA. This will allow investors to legally avoid capital gains tax. Should a large profit be realised when you come to sell the stock, this will be very beneficial.
The change of leadership and the change in how we think about flying could be the spark to turn the IAG share price around. When looking at it from a long-term viewpoint, I seriously think ISA investors should consider the stock.