European Union countries have gradually relaxed restrictions to welcome vaccinated travelers from countries "with a good epidemiological situation". Wandering tourists from the US could soon visit many of their favorite European cities, especially if they are fully vaccinated.
Meanwhile, the UK has implemented a colour-coded travel system, with safety levels compliant with traffic light standards (i.e. red, orange and green). And it is cautious about putting new countries on the green list. In fact, much to the dismay of British tourists wishing to visit Portugal, that country was recently downgraded to amber of green.
Global and regional airlines hope more people will be able to take to the skies in the coming weeks, with recent figures from the US encouraging.
According to the daily passenger numbers released by the Transportation Security Administration, the number of air travelers in the US has started to increase. On Monday, June 14, passenger throughput amounted to 1,800,954. For comparison, exactly one year ago, that number was 534,528. In 2019 there were 2,669,580.
Although air passenger numbers are still below pre-pandemic levels, travel and leisure companies are excited about the revival of travel. As a result of the positive mood, shares of travel and tourism companies have had a good year so far in 2021.
Year-to-date, the and the indices are up approximately 3.4% and 22.8%, respectively. Similarly, since the beginning of the year, shares of American Airlines (NASDAQ:), Delta Air Lines (NYSE:) and United Airlines (NASDAQ:) have been over 44.3%, 13.2% and 27.9% respectively returned.
Despite recent optimism, the future still holds uncertainties for aviation stocks. Today we are looking at member International Consolidated Airlines Group (LON:) (OTC:). Over the past 52 weeks, ICAG stock is up 11% while YTD is up about 22%.
On June 16, the shares closed at 200.3 pence ($5.56 for US-domiciled stocks). The market cap is £9.9 billion (or $13.8 billion).
IAG: A Uniquely Structured Airline
International Consolidated Airlines, one of the world's largest airline groups, was launched in 2011. The group registered in Spain is better known as the parent company of British Airways, Iberia, Aer Lingus, Vueling and Level – a recently launched new airline. Shares are traded on the London Stock Exchange and the Spanish Stock Exchange.
The group has a fleet of 533 aircraft. In addition to the airlines mentioned above, the IAG platform includes the activities of IAG Cargo, IAG Loyalty, IAG Global Business Services (GBS) and Avios. Before the pandemic, operations expanded to 279 destinations, serving approximately 118 million passengers annually.
Management published the first quarter on May 7. Total revenue was €968 million (or $1.17 billion), a 78.9% year-over-year (year-on-year) decline. Passenger revenues declined 88.4% year-over-year to €459 million (or $556.5 million). Meanwhile, freight revenues increased 42.3% year-over-year to €350 million (or $424.4 million)
The net loss after tax was €1.1 billion ($1.3 billion) compared to a loss of €1.7 billion ($2.1 billion) in the prior year quarter. As of March 31, the airline group had strong liquidity of €10.5 billion ($12.7 billion). Cash was €8.0 billion ($9.7 billion), an increase of €2.1 billion ($2.5 billion) from the previous quarter. Net debt at the end of the first quarter was €11.6 billion ($14 billion).
CEO Luis Gallego said:
"We are taking all necessary steps to ensure the long-term financial health of our company, including the successful €2.7 billion capital increase last year, and remain focused on reducing our cost base and increasing the efficiency."
Recent statistics from the International Air Transport Association (IATA) indicate an improvement in early bookings for the June-August travel period. However, new COVID-19 variants still remain a major concern. Thus, IGA did not offer a trade outlook due to "uncertainty over the timing of the lifting of government travel restrictions and the ongoing impact and duration of COVID-19."
Bottom Line
In February 2020, before the pandemic reached Europe, ICAG shares were fluctuating at 450 pence. Now they have more than halved. The stock may look undervalued, but as shares are already up more than 20% in 2021, we don't think there's much upside potential in the coming weeks.
The recovery in air traffic still remains uneven and there may be more headwinds. For example, the British government recently announced the extension of several restrictions by four weeks. We believe ICAG stocks would offer better value around 185p, or even lower. So for now we wait patiently.
Finally, investors who want to invest in the travel and leisure sector but do not want to invest the entire capital in ICAG stocks may consider purchasing an exchange-traded fund (ETF) that provides exposure to the airline and similar travel companies. Examples are:
Invesco Dynamic Leisure and Entertainment ETF (NYSE:): up 30.7% YTD;
SPDR® S&P Transportation ETF (NYSE:): up 22.6% YTD;
US Global Jets ETF (NYSE:): up 39.4% YTD.
