International Airlines Group (IAG) drops 2 percent today on the third-quarter trading results.
Why has the British Airways share price dropped?
IAG, the owner of British Airways, reports that the passenger capacity for the third quarter was only 43 percent of 2019. It expects this capacity to rise modestly to 60 percent in the fourth quarter.
Operating loss for the first nine months was EUR2.49 billion. This loss is expected to top EUR3 billion for 2021. As things stand, IAG carries a debt load of about EUR12.2 billion.
While the overall air travelling outlook remains negative, the company is pinning hopes on the re-opening of transatlantic routes between UK/Europe and America. The US border is slated to be opened for vaccinated travellers on the November 8. This may improve IAG’s revenue, as the CEO wrote:
“British Airways is serving more US destinations than any transatlantic carrier and we’re delighted that we can get our customers flying again. Longhaul traffic has been a significant driver of revenue, with bookings recovering faster than shorthaul as we head into the winter.”
At the time of writing, IAG share price trades at 165p, down by 2.5 percent from yesterday’s closing price.
Can the British Airways share price recover?
The airline industry is one of the most impacted sectors from the pandemic.
Many companies saw their bookings evaporated overnight. Cash burn surged; losses widened dramatically. Unsurprisingly airline stocks are struggling these days. Even Warren Buffett, a successful investor who preaches patience, dumped his entire airline stocks last year.
For IAG, its share prices typically move in the opposite direction of covid cases. When cases are down; share prices go up – and vice versa. As UK covid cases stays persistently at 30-50k/per day over the past few weeks, no wonder IAG stock is down about 20-30 percent from its summer high.
However, a bottom appears to have been established at 140p. The stock is in the process of forming an extended base with the potential of a further rally from here.
The fact that prices only drop 2-3 percent today indicates some of the bad news are already priced in. The near-term ceiling is at 180p.
International Airlines Group (LON: IAG) forecast 05/11/21
What is going to happen to the British Airways share price in the future?
Airline stocks are weighed down by travelling frictions around the world, such as quarantines, visa delays, and multiple covid tests. These frictions are expected to remain for the time being.
As such, analysts are lukewarm about recommending airline stocks. According to a panel of analysts in the Financial Times, 10 recommended ‘Outperform/Buy’ for IAG, while 7 say ‘Hold’. The overall outlook is modestly bullish.
However, things can change swiftly if the market sees a potential upturn in air travel. Prices can move jump overnight.
Moreover, IAG’s financial liquidity is ample at the moment. The CEO states there is no need for additional share offering to shore up its balance.