IAG shares up despite losses but can they reach pre-pandemic levels

• IAG share price up 37% in February 2021
• Best performing FTSE 100 share despite £6.4 billion loss
• Will Covid-19 roadmap and cost-cutting fuel further gains?
• Want to trade IAG shares? Open an account today

IAG (ICAG:L) shares opened at 205p today, marking a 37% increase from 149p since 2 February 2021. This makes IAG the best-performing FTSE 100 company for February, with the surge in activity leading analysts to expect more opportunities for growth in the coming months.

However, while the airline group outperformed the market, shares in the company are still down by more than a third compared to this time last year. The IAG share price peaked at 316p on 2 March, 2020, compared to today’s 205p. That’s a drop of 35% and, for a company that recently posted a full-year loss of €7.4 billion/£6.4 billion, it’s, perhaps, not unexpected .

Why is the IAG share price taking off?

The main reason for the upswing comes from summer optimism and the UK’s Covid-19 roadmap. Foreign holiday bookings have increased by 500% since prime minister Boris Johnson announced a phased easing of restrictions on 22 February. IAG had already moved to mitigate the disruption caused by Covid-19 prior to the announcement. Recently appointed chief executive officer (CEO) Luis Gallego initiated a series of staffing and supplier cost-cutting in an effort to reduce weekly expenditure by 54%.

As well as cutting 10,000 jobs and reducing weekly operating costs from £205 million, IAG’s British Airways has deferred £450 million of pension contributions. This, combined with increased liquidity, prompted chief financial officer (CFO) Steve Gunning to announce that IAG would not need additional funding in 2021. The plan, it seems, is set. Passenger numbers were down 27% in quarter four (Q4) and, in the first three months of 2021, it’s expected to be at 20% capacity. However, with Covid-19 travel restrictions set to ease in May, investors are optimistic.

Can IAG shares return to pre-pandemic levels?

Analysts are bullish on the IAG share price but not so much that they’re predicting a surge to pre-pandemic levels. Bank of America raised its target price for IAG to 230p following February’s positive run. That would be a 12% increase on the 205p IAG shares opened at on 2 March. However, that’s still 27% down on pre-pandemic levels. At this stage, it seems as though IAG may not fully recover for at least another year. However, analysts see opportunities for growth in the coming months. Norwegian Airlines recently exited the transatlantic market, leaving a gap that IAG could fill.

The company also has the advantage of being impacted less by a downturn in business travel than Air France (AIRF.PA) and Lufthansa (LHAG.DE). The other positive on the horizon is IAG’s recent purchase of Air Europa. The £500 million deal could establish Madrid as a European travel hub and allow the airline to cash in on a summer of non-transatlantic travel. Analyst forecasts believe this could keep IAG shares buoyant in the short and medium term. The central question, however, is whether or not shares will continue to rise amid continued Covid-19 uncertainty and return to pre-pandemic levels this year?

Read more on the top airline stocks to watch

Will the IAG bull run continue?

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