IAG (LSE:IAG) shares have taken a pounding over the past couple of years. As international restrictions were put in place, virtually all flights were grounded. The situation appears to be improving though, and I wonder whether now is the time to bulk up my holding in the business while the shares are still below 125p. Let’s take a closer look.
Improving operating environment
The shares, currently trading at 122p, were battered as the company was forced to cancel flights worldwide. Unsurprisingly, this led to pre-tax losses of €7.8bn and €3.5bn in 2020 and 2021, respectively.
Yet now, restrictions are quickly becoming a thing of the past. To enter countries like France and Germany from the UK, for instance, travellers only need their passport once again. Just six months ago, these journeys were far more complicated.
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What’s more, recent concerns about the surging cost of jet fuel are cooling off. The underlying price of oil has been steadily falling in the past month. This may cut costs for IAG in the coming months.
Demand for flights has also been ramping up, but this may be something of a double-edged sword. While it’s good news that more customers are booking flights, staff shortages have resulted in numerous cancellations. London Heathrow Airport has even capped capacity in a move that could be detrimental to one of IAG’s major brands, British Airways.
Clear for take off?
Despite this, it’s clear that results are quickly improving. After two years of dire financial reporting, the firm announced that it had returned to profit for the three months to 30 June. In that period, it posted a net profit of €133m, up from a loss of €981m year on year.
Furthermore, the business has a cash position of €9bn, up around €1.2bn since the beginning of 2022. This means that IAG should have enough to make it through any short-term pandemic resurgence. As a shareholder, I was also pleased to see net debt fall by €688m.
During those three months to the end of June, passenger capacity climbed to 78% of 2019 levels. Capacity was just 65% in the previous quarter. This is an important metric, because it indicates how many seats are available for purchase.
Demand and future bookings look strong, particularly for travel to and from North America, and the business expects to post a full-year profit for 2022.
The news that IAG will convert a loan to a 20% in Spanish airline Air Europa is also welcome. This will further strengthen its presence in Spain and is a sign that the company is once again focusing on acquisitions as opposed to mere survival.
Overall, I’m glad I loaded up on the shares in IAG throughout the pandemic. For me, the share price is still attractive below 125p and I’ll take this opportunity to add to my holding soon.
