Tuesday, January 18

The problems for IAG (and for all airlines) will be entrenched until 2024

The context of recovery of the activity in which International Consolidated Airlines Group operates (IAG) outlines a future where global air traffic will not return to pre-pandemic levels until 2021.

The report of forecasts for global air traffic issued by Fitch proposes a revised downward scenario in which the levels for 2021 remain 55 percent below those of 2019, a figure that decreases to 31 percent in 2022, and to 11 percent in 2023.

The credit rating agency states that the effects of new “highly contagious” variants such as omicron pose a downward risk in their forecasts, which despite trusting in an accelerated rate of recovery for the next few years, are pessimistic in their update due to the “slow rebound in international traffic and the limits still imposed on business travel.”

Fitch expects air traffic to return to pre-pandemic levels in 2024, “the report states, noting that adequate liquidity will allow most airlines to handle continued volatility until then, but that their performance will depend on how exposed they are to international routes and travel. of business.

A one-year delay in recovery

Traffic levels reviewed by Fitch imply a one-year delay in the recovery compared to their previous calculations, which predicted that the number of passengers by the end of 2023 would be, at most, 5 percent lower than the prepandemic volume.

The uptick in cases in parts of Central Europe and the discovery of the omicron variant, however, have forced us to rethink these estimates, highlighting the level of stress that the tourism sector and, especially, air operators are experiencing.

In this sense, IAG has been one of the companies most penalized in the stock market due to this distrust of investors in the repetition of a scenario of confinements and new restrictions on mobility, such as the rethinking of entry requirements in USA.

A stock market ‘Black Friday’ from which IAG has not recovered

Francisco Coll economist and analyst for the World Tourism Forum explained in the finance.com podcast the podcast of finanzas.com that “the market overreaction is due to fear, the panic of a new variant in a scenario of uncertainty”, and reason is not lacking.

So much so, that despite a slight recovery during Thursday’s session, the shares of the group of European airlines have fallen by around 17 percent in the last month, with their biggest fall on the last Friday of November, during a Black Friday in which the first omicron case was announced in South Africa and stocks sank all over the world.

From that date, IAG has been at the mercy of volatility, falling by about 14 percent and adding constant reductions to the valuations of the parent company that owns British Airways e Iberia.

Bad forecasts in Europe

The report made by Fitch offers some details of air traffic broken down by region, where it loses Europe.

If the global traffic forecast for 2021 and 2022 at the global level is 55 and 31 percent below pre-pandemic levels, in Europe Those numbers rise to 65 and 35 percent. The report does not provide data on forecasts for the European continent in 2023.

As a comparison, the credit rating agency considers that traffic in the North American market is only 20 percent lower than that of 2019, and even expects that leisure travel will approach or exceed that of that year.

The recovery in Europe, therefore, will be weighed down by “weak domestic markets and uncoordinated travel policies, despite the fact that the latter factor is improving with the European Covid passport,” in the eyes of Fitch.

Therefore, despite the fact that the agency does not expect the same level of restrictions experienced during the beginning of the pandemic, it points out that setbacks such as the confinements imposed by Austria and Slovakia they will continue to have an impact on the recovery.

The ups and downs of the coronavirus continue to affect airlines and prevent IAG correct your course.