Will the IAG share price ever return to pre-pandemic levels?

The IAG (LSE: IAG) share price was the worst-performing FTSE 100 share last year. Shares in the company, which owns the British Airways brand, plunged 62% in 2020. 

The pandemic had a significant impact on the airline group. As countries around the world slammed their borders shut, the firm’s revenues evaporated.  However, now that the global vaccination programme is well underway, there’s light at the end of the tunnel for companies like IAG and its peers. 

So, could now be the time for me to buy shares in IAG ahead of a recovery? The stock certainly looks cheap after its recent declines. Unfortunately, just because a business appears cheap doesn’t mean it’ll be an excellent investment. 

What’s the future hold for the IAG share price? 

Considering everything that’s gone on over the past 12 months, I think it would be misleading to compare IAG’s future potential to its past. The airline sector has changed dramatically over the past year. 

IAG has had to raise billions of pounds from investors to keep the lights on. Simultaneously, its most aggressive competitor in the transatlantic market, the most profitable airline route in the world, has pulled out of the long-haul market. That’s a positive for the group.

However, other competitors, both in Europe and the US, have received substantial government bailouts. This has helped them stay in the game, and may change the long-term market dynamics. 

There are also large question marks hanging over the airline industry regarding its environmental impact. Companies and consumers are becoming increasingly conscious of their environmental responsibility. I think this is almost certainly going to lead to a significant change in the airline sector. 

Difficult outlook 

All of the above makes it very challenging to decide what the future holds for the IAG share price. On the one hand, a rapid economic recovery may help push the group’s earnings back to pre-pandemic levels. That’s the best-case scenario.

In the middle case, analysts reckon it’ll take at least three to five years for the airline industry to return to 2019 levels of profitability. These projections suggest a protracted recovery for the organisation.

And in the worst-case scenario, pandemic travel restrictions could continue into 2022… and beyond. It’s unclear if IAG has enough money today to survive in this situation. I think the group would almost certainly have to undertake some significant changes to right-size its business in this darker scenario. 

Considering all of the above, I think it’s going to be a struggle for the IAG share price to return to pre-pandemic levels. Therefore, I’m not interested in buying the stock. There’s just too much uncertainty surrounding the firm’s outlook. And there’s no guarantee it’ll ever be able to recover from the past year’s shocks.