If you’d asked me six months ago, I’d have guessed at a more advanced recovery for International Consolidated Airlines (LSE: IAG). But the Covid-19 Delta variant is here, and daily cases are climbing again. And the IAG share price has slumped since its peak in March.
In the past, I’ve been wondering whether IAG shares will be back to sustainable growth by the end of 2021. But I’m now just asking if they’ll avoid a further collapse before the year’s out.
It’s not as if IAG shareholders haven’t already taken enough punishment. From a pre-pandemic high in January 2020, they’re nursing a 75% loss. Those who timed it right and bought at 2020’s lowest point in September have almost doubled their money. But that’s little consolation for long-suffering shareholders who’ve been in for years.
Where’s the IAG share price going?
What factors are likely to drive the stock in the months ahead? For one thing, I don’t think we’ll see a repeat of the over-enthusiasm that greeted the vaccine developments of November 2020. Investors piled back into all manner of stocks, and the market recovered way faster than I thought it deserved.
Since then, hindsight’s shown that early optimism was indeed a bit misplaced. And I’d say it really has sunk in that we’re in the anti-coronavirus battle for the long term. So how will the IAG share price fare as the vaccination struggle continues?
Half-year results are due on 30 July, and I reckon a lot of people will be looking at one key measure. That’s the bottom-line profit/loss figure. But I think those who do will be making a mistake. Profits in 2021 will surely mean little in the longer-term picture, particularly the first half.
Sufficient liquidity?
No, it’s got to be all about liquidity. At the end of the first quarter, IAG reported a liquidity figure of €10.5bn. That was up from a December 2020 figure of €10.3bn, so it’s looking good then? Well, maybe, at least for now.
The company essentially took on billions in new debt. From previously-committed borrowing, to newly arranged loans, and a pile of new unsecured bonds, it’s all mounting up. Oh, and the company’s been allowed to defer £450m in pension deficit contributions between October 2020 and this September.
Cash still burning
IAG had reduced its cash operating costs at the time. But at €175m per week, that’s still a hefty cash burn rate. Will the firm’s current liquidity be enough to keep it going until cash flow turns sufficiently positive?
Six months ago, I’d have been optimistic. Now I’m less confident, and I see a real possibility of further funding being needed.
That said, on balance I still veer slightly to the bullish side over the IAG share price. And I still think there’s a good chance it’ll end 2021 ahead of its current level. But the downside risk is too great for me. I’ll continue to just watch.