IAG H1 preview: where next for IAG shares?

International Consolidated Airlines Group is expected to report a mild rise in capacity and revenue when it reports results this week, but investors are focused on how things are shaping up for the peak season in the third quarter. We look at how IAG shares could react to the update.

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When will IAG release its H1 results?

International Consolidated Airlines Group, more commonly known as IAG, will release interim results on the morning of Friday July 30.

IAG H1 earnings preview what to expect from the results

IAG is set to make a tepid start to its journey down the long road to recovery when it reports results later this week. The airline’s capacity in the first quarter of this year was equal to just 19.6% of pre-pandemic levels as travel restrictions remained tight and IAG has said it expects this to rise to just 25% in the second.

This will see an improvement in results in the second quarter both quarter-on-quarter and year-on-year as it comes up against weak comparatives, although results for the first-half as a whole will be worse due to the pre-pandemic performance delivered in the first quarter of 2020.

Analysts are expecting second-quarter revenue of EUR1.45 billion and a loss after tax of EUR1.08 billion. For the first-half as a whole, they are expecting EUR2.42 billion in revenue and a EUR2.15 billion loss.

(EUR, millions)

Q1 2020

Q2 2020

H1 2020

Q1 2021

Q2 2021E

H1 2021E

Revenue

4,585

741

5326

968

1,457

2,425

Loss After Tax

-1,683

-2,123

-3,806

-1,067

-1,087

-2,154

However, you can expect to see an acceleration in demand and a rise in capacity from around late May onwards as countries continue to try to find a way of reopening international travel while simultaneously battling the threat posed by the coronavirus. For now, the situation remains highly uncertain and difficult to navigate. For example, British Airways is being hampered by the UK’s ever-changing traffic light system for travel while the complex situation in the EU is also making life difficult for the likes of Aer Lingus and its other European brands.

The situation seems to be improving, albeit slowly. Travel for fully-vaccinated people is gradually becoming easier and this will progress as vaccination programmes continue to be rolled-out. Just today we have seen reports that double-jabbed passengers arriving into the UK from amber list countries – including the US and much of the EU – may no longer have to quarantine for 10 days like they do under current rules.

Timing is key as the third quarter is peak holiday season and reports from other airlines suggest the window to save it is closing fast. The current environment, where passengers must pay out for costly testing and face the threat of having to quarantine or a sudden change in rules overnight, means bookings for this summer are being made later than usual.

The hope is that IAG’s recovery will have started to accelerate toward the end of the first half and that this can be backed up by a buoyant outlook for the next quarter.

Notably, brokers remain bullish on IAG’s recovery prospects going forward. The 18 brokers covering the airline have an average rating of Buy and a target price of 235.98p – some 29% higher than the current IAG share price.

In the meantime, investors will want to see IAG’s cargo operations continue to go from strength-to-strength. Cargo revenue was up over 42% in the first quarter and this area has given IAG an edge over many of its rivals during the pandemic by helping to offset the dramatic falls in money coming in from passengers.

Liquidity will also remain key until market conditions improve to ensure it can weather the uncertain future. IAG ended March with EUR10.5 billion in liquidity and it has since completed an EUR800 million convertible bond offering in May. It said it had managed to reduce weekly cash operating costs to EUR175 million in the first quarter.

Where next for the IAG share price?

IAG was trading near 437.75 pre-pandemic; however, the stock price fell to as low as 86.54 on October 30, 2020.  Since then, price bounced to the 38.2% Fibonacci retracement from that timeframe as traders became hopeful of a reopening. The stock then pulled back to the 50% retracement level from the October 30 lows to the March 15 highs, as well as the 200 Day Moving Average near 157.10/171.96.  

As the reopening continues, hopes are that the airline industry will pick up, and so will the IAG. Resistance is at the July 6 highs of 196.14, then the March 16 highs of 222.10. However, there is also the possibility that price may just be correcting during its move lower in an AB=CD formation.  If so, the target is just about the 61.8% Fibonacci retracement from the October 30 lows to the March 15 highs, near 139.00. However, price must first pass below the recent lows of 154.32. Horizontal support below is the December 21, 2020,lows, near 123.54. 

How to trade IAG shares

You can trade IAG shares with City Index by following these four easy steps:

  1. Open a City Index account, or log-in if you’re already a customer.
  2. Search for ‘IAG.L’ in our award-winning platform
  3. Choose your position and size, and your stop and limit levels
  4. Place the trade 

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