If I’d spent £1,000 on IAG shares 3 years ago, here’s where I’d be

Shares in parent British Airways IAG (LSE: IAG) has risen less than 2% in the past year. But what would have returned if I had bought IAG shares three years ago?

Challenging period

Aviation is an industry that goes through unforeseen challenges from time to time, whether due to terrorist attacks or volcanic eruptions. The show could see profits drop. Meanwhile, other events like a spike in oil prices can cause costs to rise. In fact, I think the basic economics of the business is quite unattractive because there are many significant variables outside the airline’s control.

The lowest value of IAG in February 2020 is 4.10 Euros. It was Friday. On Monday, they drop to £3.75 each, and on Tuesday, they drop again.

As the pandemic spreads and travel declines, IAG shares continue to fall. In September of that year, they exchanged hands for a pound each.

Three years back

Since then, he has made a strong recovery. If I buy at least 2020, I can make a good profit.

But of course, it is not obvious that the bottom will be the bottom. Some airlines went to the wall during the pandemic. IAG remains wounded, with net debt of around €11bn, reflecting the huge losses incurred by pandemic-era travel restrictions.

If I had bought the stock three years ago today, I would have 60% down on investment costs.

Excess capital (or loss)

Stock price movements are not the only way shareholders can generate returns. There are also dividends to consider.

Back in 2019, IAG paid 31c per share in ordinary dividends. There is also a special dividend of 35c per share.

That potential income might tempt me to buy IAG shares in early 2020.

But I must have been disappointed. The next dividend payment is on the stock in 2019. However, if I continue to hold the stock now, I will get any payment if the dividend is brought back in the future.

What about travel allowance? After all, British Airways used to offer its shareholders discounted flights. Unfortunately, these benefits were canceled when it merged with Iberia to form IAG.

A wing and a prayer

All that said, then, tying up your money in IAG shares for the past three years would have been a huge opportunity cost when there were some amazing deals on the stock market. I will now sit at the loss of a large paper.

If I have bought and then sold since, I will have a real loss. IAG shares are trading higher in 2021 than they are now, but still not at the level of three years ago.

My investment lessons

As recent history shows, airlines can destroy shareholder value on a massive scale.

That is not limited to IAG. While IAG shares are 60% lower than they were five years ago, easyJet it has ended worse. Shares have fallen 65% in that period.

The structural economics of the industry can mean airlines struggle to cope with sudden changes in demand. Fortunately, it can suffer. Therefore, I have no plans to buy IAG shares for my portfolio.