FTSE 100

IAG’s share price surges 4% despite reporting a 75% slump in revenue

The IAG share price (LON: IAG) (IAG.L) is currently trading around 4% up after the company released its full-year results

The IAG share price (LON: IAG) (IAG.L) is one of the biggest risers in the FTSE 100 index (INDEXFTSE: UKX) so far today. The airline’s shares are currently up by around 4%, versus a 0.3% fall for the index, after it released its full-year results for the 12 months to the end of 31 December 2020.

They showed a fall in passenger revenue of 75.5%, with passenger capacity being 33.5% of its 2019 level as a result of Covid-19 restrictions. This resulted in an operating loss of €7.4 billion versus an operating profit of €2.6 billion for the previous year.

The company reduced its capital expenditure in 2020 by €2.3 billion so that it amounted to €1.9 billion. This was part of a wider plan to preserve cash, with its non-fuel costs declining by 37.1% during the year as it focused on cost reductions. It plans to seek to increase its proportion of variable costs in future to better match market demand.

IAG ended 2020 with a cash balance of €5.9 billion. When combined with its committed and undrawn debt facilities, this gives the firm total pro-forma liquidity of €10.3 billion. Its net debt of €9.8 billion is 29% higher than it was at the end of the previous financial year.

In terms of IAG’s operational performance, the company operated 4,003 cargo-only flights during the year. This helped to increase its cargo turnover by €200 million so that it stood at €1.3 billion for the full year. Cargo helped to make long-haul passenger flights more viable, according to the company.

Future prospects

The IAG share price has fallen by around 50% in the past year. This compares to a 6% decline for the FTSE 100 index over the same time period.

The company is currently not providing profit guidance for the 2021 financial year due to the uncertain trading conditions it faces. It expects passenger capacity for the first quarter of 2021 to be around 20% of 2019 capacity. However, this remains subject to change depending on operating conditions and the progress made in lifting Covid-19 travel restrictions in its key markets.

IAG states in today’s results that it expects demand for air travel will remain suppressed for several years and will not return to 2019 levels until at least 2023. In response, it has taken steps to reduce the size of its aircraft fleet in order to lower the cost of maintenance.

Commenting on today’s full-year results, the company’s CEO Luis Gallego stated: “Our results reflect the serious impact that COVID-19 has had on our business. We have taken effective action to preserve cash, boost liquidity and reduce our cost base”. He went on to add: “We know there is pent-up demand for travel and people want to fly. Vaccinations are progressing well and global infections are going in the right direction”.

Not Investment Advice Note: Views expressed are those of the writer. The author does not own any stocks mentioned. The article is information, not advice. Share prices can rise and fall. Past returns are not a guide to the future. Please do your own research.