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IAG: “It is a sector that needs perfection to be profitable”

The value has suffered severe structural damage in the pandemic. Now the reopening of North American borders is positive, but it is too early to see a total reactivation. “I would still be prudent in it, although somewhat less prudent than months ago,” says Jose Lizan, from Quadriga.

IAG (Iberia) , is still in the spotlight, very sensitive to any news that may indicate a certain recovery in travel, as happened a few days ago with the good results of Merck’s drug against the coronavirus.

But it must be taken into account that the tourism sector has suffered very serious structural damage with the pandemic going from 0 to 100 at once and for many months.

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The reactivation, far from being 100%, is, in the best of cases, at 50 or 60% occupancy of flights or hotels. And the damage to the balance sheets of the companies was very strong, many had to increase capital by diluting their shareholders, they destroyed a lot of cash and many of them had to issue debt.

The bottom line is worse than before the pandemic. But they are also companies that need very high cruise speeds , in the sense that they need occupancy rates close to 100% to be profitable, according to Jose Lizan, manager of Magnum Sicav at Quadriga AM .

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“There is a marginal benefit issue and probably the last 10% of the customers are the ones that give the benefit to the companies, the rest cover the overhead costs and the fixed costs.”

In short, Jose Lizan points out that it is a sector that “needs perfection” to function and be profitable for shareholders.

Until this happens, we are going to see a lot of volatility and a lot of doubts. The reopening of North American borders is positive, but it is too early to see a full reactivation . “I would still be cautious in it, although somewhat less cautious than months ago.”

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