When will the IAG share price return to pre-pandemic levels?

International Consolidated Airlines Group (LSE:IAG) shares have risen an impressive 55% over the past year. However, the IAG share price is still down 38% over the last five years, especially since the stock market crash in early 2020 due to the pandemic. However, as financial performance improved, I wanted to see what it would take for the stock to recoup its losses.

Long story short

In the week commencing February 17, 2020, IAG shares traded slightly above 400p. But the impact of the lockdowns and the subsequent market crash caused the share price to fall by 70% in the following month.

This may seem like an extreme step today, but back then investors were in a panic. Due to these lockdown measures, IAG was unable to operate many flights. At the same time, costs arose for the aircraft coming to a standstill on the runways. Unfortunately, it was a recipe for disaster.

Despite posting a pre-tax loss of almost €8 billion in 2020, the company survived. Fast forward to 2024 and IAG is fully operational again. What is important is that the company is now profitable again. However, the share price is at 214p, still a long way from the 400p levels of early 2020.

Reasons to consider

One reason for this is the fact that borrowing is now higher than at the beginning of 2020. In the 2019 annual report, the company reported borrowing of 12.4 billion euros with total liabilities of 28.6 billion euros. The 2024 report (using 2023 figures) showed that borrowings had increased to €13.8 billion, while liabilities also increased to €34.4 billion.

I understand that IAG had to take on more debt to ensure survival during the pandemic. But until we can reduce this, I believe the share price will be held back.

Another factor is that I think the stock was fairly valued at the beginning of 2020. Now I think it’s undervalued. For example, the price-to-earnings ratio (P/E) is only 5.08. This is well below the fair value value of 10 that I used. I think some are still cautious about investing. However, if earnings per share remained the same and the share price doubled (to bring the P/E ratio to 10), then the share price would be over 400p again!

Patience required

I am convinced that the IAG share price will return to 2020 levels. However, I believe it will take at least a few years to achieve this. The stock won’t double in value overnight or even in just a few months.

The company needs to continue to grow and ensure it generates solid profits in the meantime. She should then use part of this money to pay off debts. One risk going forward is that the market for short-haul airlines is very competitive. This could result in the loss of valuable market share, which could have a negative impact on finances.

I have IAG on my radar to keep an eye on as a value play in the coming months.