Sunday, November 28

IAG: the block of skeptical brokers continues to grow

The actions of IAG They chained a streak of seven falls in the last eight sessions, after skepticism among investors and analysts about the recovery of activity soared.

While bear investors gave the airline a break, brokers did the opposite and unleashed a veritable wave of downgrades in their recommendations.

Investment firms of great weight, such as Bernstein, Berenberg, Peel Hunt or JP Morgan showed their dissatisfaction with the prospects of the airline.

This bloc of grieving experts has just been joined by analysts from Exane BNP Paribas, which have lowered IAG’s recommendation from ‘neutral’ to ‘underweight’.

Difficult prospects for IAG and the industry

The truth is that the sector is not experiencing its most buoyant moments. “The recovery prospects for airlines still appear to be difficult, both in terms of recovery in demand and supply in capacity,” they explained at the French bank.

“We don’t like what we see” regarding the demand for corporate travel and, although the demand for leisure is stronger, it is a “fantasy” to suggest a full rebound given the complications of flying for the unvaccinated and the possibility that Vaccinated clients are put off by logistics and fear of contagion, these experts added.

But not all airlines covered by Exane BNP Paribas they were as lucky as IAG. Specifically, the French bank raised its recommendation Luthansa y Jetblue hasta ‘neutral’.

In the case of the German airline, they calculated a potential upside of 7.5 percent, while in IAG the opposite is true, since the new target price of 1.79 euros implies a downward journey of 6.5 percent.

Too much capacity

The problem that BNP Paribas Exane analysts identified is oversupply from airlines.

“Clearly, there is too much capacity” that is returning to key markets and the “supernormal” returns expected after the pandemic are unlikely to materialize.

It is a problem added to the coronavirus itself that has revealed the opening of traffic between Europe and the United States. There is not as much demand for the supply that companies are placing in the market.

Free Covid-19 Trials to Boost Transatlantic Demand

So much so that British Airways itself will offer free Covid-19 tests in the corporate segment from 2022 to boost demand for transatlantic travel.

The idea is to make it easier for business travelers to get on a plane, especially if they fly on short notice.

The pandemic has changed the habits of executives and zoom video conferencing is now a fierce enemy. Not to mention the growing awareness of the problem of climate change.

What practically all analysts are detecting is that the recovery of business travel has lagged behind tourism, and this is a critical segment for companies, as they apply much higher rates.

The long road to normality

The fact that many airlines have been able to survive the pandemic with the fleet on the ground is already a merit in itself. Some with state aid, such as Lufthansa or Air France, and others through capital increases, as is the case with IAG. The problem is that the return to normality will be slow.

It is true that the recovery began to be noticeable in the third quarter, but “the short-term pace is going to be slower than we expected,” said the Renta 4 Banco analysts. But in his opinion, the momentum should gain intensity next year.

If the rise in oil prices offers a truce and the health situation does not deteriorate further, analysts are still seeing the light at the end of the tunnel. The key is the transatlantic flights, where now there are plenty of seats.

“We see a very positive outlook for the company in the next twelve months, as transatlantic services return,” they recalled at Deutsche Bank.

Leave a Reply

Your email address will not be published. Required fields are marked *