Since the pandemic started in 2020, the IAG (LSE: IAG) share price has faced an extremely turbulent time. Indeed, it fell from over 600p pre-pandemic to under 100p at one point during the global health crisis. It’s currently priced at around 140p. By contrast, the FTSE 100 has almost reached its pre-pandemic levels. But with travel restarting around the world, and Covid restrictions being removed, can the IAG share price outperform the FTSE 100 this year?
IAG’s 2021 results were far from pretty. In fact, it reported an operating loss of around €2.7bn. At the same time, net debt increased another 20% from the prior year to reach €11.6bn. This means that if losses continue, it could lead to major trouble for the airline group. The IAG share price could lose more ground as a result.
But there are also some positive signs. For one, revenues increased 8.3% from 2020 to reach €8.45bn, demonstrating that demand started to return. In addition, operating losses have shrunk compared to the previous year, showing the benefits of the firm’s cost-cutting measures.
Finally, there’s also more optimism around the future. For one, current passenger capacity plans for 2022 are around 85% of 2019 capacity for the full year. The Omicron variant is also said to have had a minimal impact on bookings for Easter and summer. As people have been unable to go on holiday for a long time, I feel that there’s a possibility for demand to exceed the 85% figure, especially if there are no more large coronavirus outbreaks.
Not out of the woods yet
Yet there are still some worries around the pandemic. In fact, due to the waning immunity offered by vaccines, cases do remain high, especially in Asia. As such, there’s the worry that, even if all restrictions are lifted, some people will still be reluctant to travel. This would have a negative effect on the IAG share price.
And due to the extremely high price of oil, costs could soar. The company has not fully hedged oil and this is likely to strain profit margins. Even so, due to the current turbulent nature of oil, I hope that this is only a short-term problem.
Finally, the conflict in Ukraine has meant that UK carriers can’t fly over Russian airspace. Although IAG has stated that this will only have a “minimal” impact on operations, it remains a concern, especially if the company has to start taking longer routes to avoid Russian airspace.
Can the IAG share price beat the FTSE 100?
It seems certain that the IAG share price will be more volatile than many others in the FTSE 100, as the airline industry remains turbulent. But while this is a major negative, I think the cloud may have a silver lining, especially if demand increases for travel this summer. This could help boost investor sentiment. Therefore, although I recognise that there are many risks, I’m tempted to initiate a small position in IAG, as I feel it could outperform the FTSE 100 in 2022.
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Stuart Blair has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.