Will the IAG share price freefall after €2.75bn capital hike?

Shares in International Consolidated Airlines Group (IAG) continue to fall this week as the company pushes forward with its planned €2.75 billion capital raise, with major shareholder Qatar Airways supporting the move in exchange for board representation.

Qatar Airways, which has slowly built a signifcant shareholding (25.1%) in IAG, has proposed two directors to sit on the board of British Airways following the cash call.

IAG CEO Willie Walsh told listeners on Ireland’s RTE Radio that he believes shareholders will be supportive of the capital hike, which is necessary to strengthen its balance sheet after a disappointing first-half performance in 2020 as a result of the coronavirus pandemic.

News this week has seen IAG shares trade 7% lower on Friday, with the stock having fallen 12% over the last five trading sessions as investors pull back as fears of a second wave of Covid-19 infections begin to materialise, dealing yet another blow to an already downtrodden aviation industry.

IAG is trading at 167p per share at the time of publication, with the stock down 73% year-to-date.

IAG shares sink lower after suffering record Q2 loss

As a result of the myriad of headwinds facing the airline industry, IAG recorded a record loss in its second quarter (Q2), with government-imposed lockdowns grounding flights and almost entirely wiping out passenger traffic in 2020.

In fact, passenger traffic fell 98.4% over the three months to June, prompting the airline group to slash capacity by 95.3%.

‘We continue to expect that it will take until at least 2023 for passenger demand to recover to 2019 levels,’ Walsh said in a statement on Friday.

‘Each airline has taken actions to adjust their business and reduce their cost base to reflect forecast demand in their markets not just to get through this crisis but to ensure they remain competitive in a structurally changed industry,’ he added.

IAG recorded an operating loss for Q2 of €1.3 billion loss – narrowly beating analysts -€1.4 billion forecast – down from the €960 million profit that it achieved in the same period last year.

IAG: technical analysis

Shares in IAG have been on the slide over the past two-months, with the stock dropping to new lows not seen since mid-May.

‘There is a possibility that we are looking at a retracement of the 148p rally, yet with price having cleared out all the Fibonacci levels, the chances of another multi-year low are growing,’ Josh Mahony, senior market analyst at IG said.

‘As such, any bullish outlook would require a break through the prior swing-high (currently 233p),’ he added. ‘Until then, further downside looks likely as we close in on the prior low of 148p.’

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