Despite a promising start to the year, International Consolidated Airlines (LSE: IAG) has disappointed in 2021. The IAG share price peaked in March, but it has since fallen 35%.
Since early February 2020, just before the crash kicked in, IAG shares are down 78%. And with the early recovery now faltering, what’s happening with the British Airways owner?
Optimism over an early return to pre-pandemic flying volumes appears to be fading. It could take a fair bit longer to get the people back in the air again. At least, that’s what the latest opinions from US aircraft maker Boeing suggest.
Vice-president of commercial marketing Darren Hulst told us the company doesn’t expect global aviation to get back to 2019 levels until “end of 2023, early 2024.” He adds that the domestic market should recover quickest, with long-haul flying bringing up the rear.
Bad news for long-haul
If Boeing’s right, I think it could be especially bad for the IAG share price. US airlines with big domestic business can hopefully take away something positive. But IAG doesn’t really do domestic. And worse, IAG doesn’t compete much on the shorter-haul European routes that seem likely to be in the recovery’s second rank either.
No, IAG relies almost wholly on the long-haul market. The company was only expecting to see around 45% of pre-pandemic flying by the end of 2021. And that’s already significantly behind the 60% levels that short-haul specialist easyJet is aiming for.
IAG share price: relatively solid?
Speaking of easyJet, the budget airline has shown how tough it is for the sector right now. Its share price tanked after the airline revealed it had rejected a takeover approach. At the same time, easyJet announced a new rights issue to raise £1.2bn. Oh, and a new debt facility to the tune of $400m too.
Since the start of the year, easyJet shares have lost a third of their value. Compared to that, the IAG share price fall of a mere 13% almost looks like a win.
Above all else, Boeing’s sobering reflection on the state of aviation has confirmed one thing for me. The early bullishness boosting the prospect of a return to the skies was misplaced. Like me (usually a perpetual airline pessimist), the markets were too optimistic.
Buy when it’s down?
But then, the contrarian side of me starts to kick in. I mean, the best time to buy into a sector is when pessimism is at its peak, isn’t it? Well, it can be. But then, pessimism can be well placed, and sectors down in the dumps can suffer further pain before things start to get better.
The big question for me is whether IAG has a strong enough balance sheet to see it through. Will there be a return to profits and positive cash flow before the liquidity runs out? Until recently, I’d have offered a reasonably confident ‘yes’. But now I’m not so certain.
So what do I think might happen now? Well, I still have a feeling that the IAG share price could do well over the next 12 months. But the uncertainty and risk are too much for me.