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New data released by a specialist in artificial intelligence and machine learning indicates that institutional investors in IAG shares (LSE:IAG) are becoming increasingly negative about the company for the long term, as troubles and travails continue to undermine the airline sector as a whole during the current pandemic.

According to AI specialist Irithmics, which analyses the activity of institutional investors like fund managers in FTSE 100 stocks, big buyers of International Consolidated Airlines Group shares have become increasingly, even strategically, negative on IAG over the summer. This sentiment rating is important, as IAG has been hitting some bumps in the road recently.

There was yet another fall in the IAG share price when it opened for trading this morning, dropping from £1.94 to around £1.40 at time of writing, partly the result of the recent rights issue.

Airline industry facing the biggest crisis in its history

Willie Walsh, Chief Executive of IAG, warned last week that the airline industry was facing the biggest crisis in its history. On his last day he was witness to a shareholder revolt over IAG’s remuneration report, which included an £830,000 bonus for Walsh. Some 30% of IAG’s shareholders refused to back it at a time when the company was making redundancies among air crew and ground staff.

Significantly, Walsh said the airline industry was unlikely to see passenger demand returning to 2019 levels until at least 2023. He defended the decision to make thousands of redundancies and to move many British Airways staff to inferior contracts.

AI reveals investors are negative on executive compensation for BA management

Artificial intelligence models don’t reveal a clear ‘for’ or ‘against’ binary answer. AI instead tends to show a distribution of possible outcomes, with some being more likely than others. Using AI to understand the influence executive compensation is likely to have on IAG institutional shareholders shows a predominantly negative (64%) outcome, with 31.6% accounting for the significantly strong negative assessment of investor expected behaviour discovered by Irithmics.

Irithmics has noted a number of ‘material shifts’ in institutional investor sentiment around the IAG share price during the course of 2020. A significant inflection point occurred on 19 February as investors started to digest news of the COVID-19 spread. Longer term strategic views seem to have bolstered IAG share rallies on 13 May, 22 May and 1 June. Recent drops have, however, been associated with long term shifts in strategic views as well, notably 23 July, 27 August and 4 September.

IAG has warned passenger demand has eased and now expects capacity to decline this year more than previously thought. Available seat kilometres are forecast to drop by 63% in 2020 and still be 27% below 2019 levels in 2021. Previously IAG had forecast declines of 59% and 24% respectively. The forecasts came as IAG announced a €2.75bn discounted rights issue to strengthen its balance sheet.

The airline industry has also been troubled by the actions of the UK and other governments to try to curb the spread of the virus with sporadic quarantine restrictions. The efficacy of these has yet to be clearly demonstrated.


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Please note this article does not constitute investment advice. Investors are encouraged to do their own research beforehand or consult a professional advisor.

Stuart Fieldhouse

Stuart Fieldhouse

Stuart Fieldhouse has spent 25 years in journalism and marketing, including as a wealth management editor for the Financial Times group, covering capital markets and international private banking, and as an investment banking correspondent for Euromoney in Hong Kong. He was the founder editor of The Hedge Fund Journal.

Stuart has worked at CMC Markets, supporting the re-launch of its global financial spread betting and CFD trading platforms. He is also the author of two books on trading, published by Financial Times Pearson. Based in The Armchair Trader’s London office, Stuart continues to advise fund managers, private banks, family offices and other financial institutions.

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