LONG SUFFERING British Airways shareholders and Iberia owner IAG understand all too well what it’s like to be invested in a recovery game when there isn’t much recovery.
The IAG share price started on a six-month downward trajectory in March, since then much of the company’s fleet has been stranded and cash has continued to burn.
The emergence of green shoots on the abandonment of the government’s traffic light system for overseas destinations fueled a rise in IAG’s share price in September, but today’s third quarter results may- do they help keep this rebound on track?
IAG is focused on forecasting for now, as the company continued to record a loss excluding exceptional items in the last quarter, this time amounting to 485 million euros (416) million euros. Encouragingly, cash flow turned positive for the first time since the pandemic.
No mention of coming fourth quarter earnings is a disappointment. The capacity planned at 60% of 2019 levels will certainly not be enough to evoke this. Instead, the company is only saying that it is focusing on increasing capacity to ensure it is put in place for a return to profitability sometime in 2022.
IAG appears to be managing cost pressures well, as it has done in the past. Personnel costs fell 17% in the third quarter compared to the same period in 2020. Fuel costs also fell (21% lower) despite the rise in passenger revenues1.
The pent-up demand for flights, especially over long distances, is undoubtedly still strong. Additionally, the substantial cash reserves built up by households during the pandemic, the return of employment to pre-pandemic levels and rising wages suggest that many would-be travelers now have the means to do so.
Against this, the persistence of Covid-19 continues to deter many people from achieving their travel ambitions. The rapid rise in household bills will be seen as another reason not to spend.
In this environment, the reopening of the Transatlantic Corridor on Monday could meet with a more understated response from non-business users than the company thinks, particularly at around £ 1,705 for a budget seat in New York (according to my quick research yesterday)2.
The market value of IAG has fallen by about two-thirds since the start of the pandemic and today the IAG share price appears undervalued compared to recent history trading at a modest multiple only 5.6 times the expected benefits3.
This is despite entering these results with high hopes after German carrier Lufthansa on Tuesday unveiled a surprise return to profitability in the third quarter.4.
With IATA forecasting that air passenger travel will grow at an average annual rate of 3.7% over the next 20 years, investors with a long-term view may well see this as an entry point. attractive.5.
However, in a weakening consumer environment, the short-haul outlook for the long-haul may remain difficult. Significantly higher marks applied to the budget, short-haul carriers Ryanair, easyJet, Jet2 et al suggest that Heathrow, if not Houston, still has a patching problem.
1 AIG, 05.11.21
2 British Airways, 04.11.21
3 London Stock Exchange, 05.11.21
4 Lufthansa Group, 03.11.21
5 IATA, May 2020