Will the IAG share price overcome current headwinds?

With news that British Airways would be pivoting towards Boeing aircraft, parent company IAG’s share price could see a jump as the firm battles headwinds facing the airline industry. The firm is caught up in controversy after investors rejected its CEO’s bid to increase, which may affect how investors perceive the stock, but will be banking on strong summer forecasts in order to spur growth.

As is always the case, there are a range of factors at play influencing IAG’s [IAG] share price, not least the airline’s recent agreement to switch from Airbus [AIR.EPA] to Boeing [BA] jets.

Another less positive situation for the group — which includes Aer Lingus, Iberia and Vueling, as well as British Airways — is investors’ disgruntlement with the “excessive” share award plan increase for CEO Luis Gallego. How this might affect perception of IAG could prove pivotal for its shares.

Recent updates from US airlines struck a more optimistic tone for US travel, with Delta [DAL], United Airlines [UAL] and American Airlines [AAL] expecting a return to profit this year. However, IAG’s various brands mean its domestic market is more fragmented.

Though the airline reported a €2.9bn loss at the end of last year, it predicted a return to profit in Q2. The company reiterated this in 6 May’s Q1 results, despite Russia’s invasion of Ukraine and other headwinds, including the impact of lockdowns and restrictions on routes in Asia and China.

What’s happening with the IAG share price?

IAG’s share price is a long-haul flight away from its pre-pandemic high of 450p in January 2020. However, it’s managed to recover some of its losses from autumn 2020, when the stock price dropped below 100p. It’s certainly been a bumpy ride for investors, and the shares are down 35.6% over the past year through to Friday 27 May and down 8.4% year-to-date. While the stock is up 19.3% from its 52-week low of 109.42p set on 7 March, it is still 61% off last June’s 52-week high of 210.05p.

Anger over CEO’s share award

IAG is braced for a “rebellion” at its annual shareholders’ meeting, scheduled for 16 June, according to Sky News, after proxy voting agency Glass Lewis recommended investors vote against the company’s proposed pay policy. The development follows criticism of proposals for an “excessive” hike in executives’ share awards, despite huge losses incurred due to the pandemic.

Glass Lewis said in a report to its clients that IAG’s proposal to increase Gallego’s maximum share award from 100% to 150% of his salary was “misaligned”. “We expect the [remuneration] committee to show restraint in its granting practices when a company has seen a steep decline in share price,” it said in a statement. “Further, we note that it’s common practice for committees to reduce grant levels for share-based incentive awards in such circumstances,” the agency added.

IAG defended the move due to Gallego forgoing previous bonuses and taking a salary reduction in 2020 and 2021. However, aviation analyst Sally Gethin said the move looked “really bad” in the current climate, and that the company was caught in a cycle of “rinse and repeat”. The IAG share price fell 2.53% after the news broke on Tuesday 24 May, and next month’s shareholder meeting is sure to be closely watched by investors.

Will the Boeing deal impact IAG’s share price?

IAG recently revealed an order of a significant number of 737 aircrafts from Boeing to replace its current fleet of Airbus A320 aircraft, as part of a refresh of older planes. Half the order is for 25 new Boeing 737-8200 aircraft, for delivery between 2023 and 2027, while the other half is for the larger Boeing Max 737-10.

IAG, which also has an option for another 100 Boeing aircraft, says it has “negotiated a substantial discount” on the initial order worth $3.1bn, and that the planes “can be used by any airline in the group for fleet replacement”.

Gallego said: “The addition of new Boeing 737s is an important part of IAG’s short-haul fleet renewal… these latest generation aircraft are more fuel efficient… and in line with our commitment to achieving net zero carbon emissions by 2050.”

Boeing Commercial Airplanes president and CEO, Stan Deal, added: “IAG has invested in a sustainable and profitable future, as both variants will significantly lower operating costs and CO₂ emissions.”

It certainly looks like a deal that suits both parties, and should help maximise IAG’s efficiencies, as well as meet wider climate targets. IAG’s share price has gained 6.5% since the 19 May announcement.

Summer uptick in risk sentiment? 

With Russia’s invasion of Ukraine contributing to fast-rising oil prices, the Motley Fool’s Jon Smith reckons “measures will be taken over the course of the summer to bring down such high commodity prices”, in turn boosting risk sentiment. A peaceful resolution to the war would be the ideal outcome of course, but Smith also suggests that OPEC could increase output from the Middle East. Either — or both — outcomes should see commodity prices start to fall.

In addition, inflation could peak at some point over the next few months, while government action should go some way to easing the cost of living squeeze. If some of these events transpire, Smith expects “the IAG share price to jump as people get back confidence in growth stocks”.

IAG’s Q1 results also confirmed the airline is on the road to recovery. Passenger capacity continues to move higher, at 65% of 2019 levels, with expectations for 80% capacity in Q2, 85% in Q3 and 90% in Q4. North Atlantic routes are expected to be close to full capacity by the third quarter.

Revenue at €3.44bn also came in slightly above expectations, while operating losses narrowed to €754m, albeit higher than expected. With the airline anticipating a return to operating profit from Q2, investors and analysts will be keeping a close eye to see if those second quarter numbers deliver.

What’s next for IAG shares?

The 14 analysts offering 12-month price targets for IAG with the FT have a median target of 173.46p, with a high estimate of 229.58p and a low estimate of 119.89p. The median estimate represents a 32.9% increase from last Friday’s close of 130.48p.

In terms of recommendations, nine of 17 analysts rate IAG shares a ‘hold’. There are also three ‘buy’ and four ‘outperform’ recommendations, with just one ‘underperform’ and no ‘sell’ ratings.

While the consensus view is to hold IAG stock, analysts seem to be leaning to the upside. In such an uncertain economic environment, and with investor disquiet ahead of an upcoming gathering for IAG’s shareholders, it may be a stretch to suggest IAG shares are due to take off any time soon, but they may be worth filing in the ‘one to watch’ category.