It has been a rough take-off for International Consolidated Airlines Group (LSE: IAG) in 2020. This is not to say that the company is coming off of a great 2019: its shares were up just 0.8% in the year. However, the surge in crude oil price following the assassination of Iran’s military leader Qassem Soleimani made the beginning of the year a rough outing for the share.
And in my estimation, things are not about to get any easier. Let’s look back a bit before we look forward.
Wake turbulence
For the most part, 2019 was a very difficult time for the British Airways owner. Its share price, which had peaked at 664p in early February, had been pummelled down to 413.5p at the beginning of August – a decline of 38%! The political wrangling in the UK related to Brexit was the chief cause of this decline.
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The problems faced by British Airways were a major reason for the decline in IAG’s share price. In July, the airline operator was fined £183 million after data of half a million of its customers was stolen from its website.
British Airways’ long-running dispute with its pilots has also damaged its owner ,both reputability-wise and financially. The strikes by pilots in September led to a cancellation of 2,325 flights and resulted into a loss of £121 million.
IAG’s share did bounce back, though, and from mid-August until mid-December its price surged by nearly 52%!
The results of election in the UK is exactly what the airline operator needed to set itself up for 2020, as the end of uncertainty boosted its share price.
Into rough weather
Sometimes, turbulent times don’t seem to end. So is also the case with British Airways. An annual poll by Which?, whose results were released in December, showed that the airline ranked the second worst in passengers’ opinions. The respondents were dejected by the food and drink quality, seat comfort and value for money across both short and long-haul services. Not a good look for the “world’s favourite airline” as the carrier calls itself. Just four years ago, it was named as the best short-haul airline.
Early in January, AirlineRatings.com released the raking of the world’s safest airlines. British Airways was unable to make it to the top 20; it had made among those ranks last year.
Geoffrey Thomas, Editor-in-Chief of the publisher, cited two reasons why the carrier slipped out of the top 20: the ageing fleet and a high number of non-critical incidents.
Headwinds
Poor customer satisfaction, data privacy issues, and the tiff with pilots (though they have voted to settle their dispute with the carrier) aren’t the only reasons I wouldn’t invest in IAG right now. The rising fuel prices because of aforementioned tensions between the US and Iran are a big factor.
Fuel prices account for about a quarter of IAG’s operating expenses and are its largest variable expense. Combined with the factors mentioned above, they make for a strong case against the airline operator. At about 600p a share, the share is a thumbs down for me.
