IAG Q1 preview: Where next for the IAG share price?

Graphic of trading data chart
Josh Warner
By :  ,  Market Analyst

When will IAG release Q1 2022 earnings?

International Consolidated Airlines Group, better known as IAG, will release first quarter earnings on the morning of Friday May 6.

 

IAG Q1 earnings preview

It is still early days for the airline industry’s recovery. There is expected to be a boom in demand this summer as people start travelling again to make up for lost time during the pandemic but, for now, demand remains well-below pre-pandemic levels and the market remains competitive as all airlines strive to attract customers back.

IAG has said it will be operating at 65% of pre-pandemic levels in the first quarter of 2022, up from 58% in the fourth quarter of 2021. The Omicron variant continued to weigh on bookings in the January and February, but IAG said this had ‘minimal impact on bookings for Easter and summer 2022’, signalling that things should continue to improve going forward.

Total revenue is forecast to jump to EUR3.33 billion in the first quarter of 2022 compared to just EUR968 million the year before, when the pandemic was causing far more disruption for the travel industry.

IAG is expected to remain in the red and report an adjusted operating loss – the company’s headline earnings measure – of EUR521.0 million in the first quarter. The loss will be driven by the impact of the Omicron variant in early 2022, higher costs as it rebuilds capacity, as well as the seasonal lull in the first quarter. Still, that will mark a major improvement from the EUR1.17 billion loss booked the year before.

Importantly, IAG said it expected to report its first operating profit since the start of the pandemic in the second quarter, with analysts currently anticipating it can report an adjusted profit of EUR263 million.

‘IAG expects its operating result to be profitable from quarter two, leading both operating profit and net cash flows from operating activities to be significantly positive for the year. This assumes no further setbacks related to COVID-19 and government-imposed travel restrictions or material impact from recent geopolitical developments,’ the airline said in February.

IAG said bookings had improved since the start of 2022 and that it anticipated a ‘robust summer’ that will help the airline operate at around 85% of pre-pandemic capacity over the full year in 2022. That will be a stark improvement from just 36% in 2021.

The significant improvement in trading, twinned with the fact IAG has slashed costs and become more efficient during the tough times over the last couple of years, means the airline is ‘set up to return to profitability in 2022’.

Consensus figures currently suggest IAG can deliver an adjusted operating profit of EUR704 million in 2022. That would bring an end to two consecutive years of losses that amounted to a combined EUR7.33 billion but will remain well below the profits that were being delivered before the pandemic erupted.

This will be the first set of results since Nicholas Cadbury, IAG’s new chief financial officer, joined the company in March. He agreed to join last year and left his role as finance director of hotel, pub and restaurant operator Whitbread to replace Steve Gunning. Cadbury’s number one job is to guide the company back to profitability this year.

However, this will be a challenge. Demand may be recovering but the airline industry is being hit by rising costs across the board at a time when airlines need to offer competitive prices to win back customers, especially for short-haul flights across Europe as IAG competes against low-cost carriers like Ryanair, easyJet and Wizz Air. Meanwhile, IAG and others are also struggling to recruit staff that are wary about returning to a volatile industry after finding other forms of work during the pandemic, which risks airlines being left without the workers they need to fully capitalise on the rise in demand this year.

The Financial Times reported late last month that British Airways, just one of several brands in IAG’s portfolio, is being forced to trim its schedule until the end of June, around a month longer than previously expected. It is not clear how severe the schedule is having to be trimmed but it is being done to ensure there are fewer but more reliable flights after several airlines were forced to cancel swathes of flights in recent months due to a lack of staff. Airlines may have to up their pay or benefits to entice staff back, with British Airways alone having cut around 10,000 jobs as it sought to make savings during the height of the pandemic. That may allow the industry to better meet demand, but could also threaten its ability to return to profit.

Capital expenditure is set to rise to EUR3.9 billion in 2022 as it continues to rebuild capacity and takes delivery of aircraft after delaying them last year, up from just EUR700 million in 2021. This could push up net debt further from the EUR11.7 billion reported at the end of 2021, which has steadily risen over the past two years from below EUR7.6 billion at the end of 2019. Analysts believe this could climb to as high as EUR13.5 billion by the end of this year.

 

Where next for the IAG share price?

IAG shares were stuck in a prolonged downtrend during the year to March 2022 before finally finding a floor after hitting a 17-month low of 109p. The stock has managed to rebound over 26% since bottoming-out and is today trading closer to 147p.

The stock is currently trading between the 50-day moving average at 141p and the 100-day sma at 148p. But the bigger trend is the rising wedge that has formed over the past two months. The RSI remains in broadly neutral territory and trading volumes have risen over the past 10 days to suggest the current trend will continue. We could see shares continue to steadily rise higher toward the 200-day moving average at 156p before the rising wedge kicks-in and brings about a reversal.

If a reversal does come about, shares could swiftly unravel and give back the gains booked in recent months. The first downside target below the 50-day sma is 132p and then 125p, but a break below here would be more significant as it reopens the door to the 17-month low of 109p.

If the uptrend can gain momentum then the stock should be able to recapture the 200-day sma before targeting 167p and then the 2022-high of 180p. Notably, the 17 brokers that cover the airline believe it can also climb close to those highs over the next 12 months with an average target price of 179p.

The IAG share price is in a rising wedge

 

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