The Covid-19 pandemic hit airlines such as International Consolidated Airlines (LSE:IAG) hard. Restrictions on travel and the economic downturn meant fleets of aircraft were grounded, holidays were cancelled, and millions in revenue were lost. The IAG share price capitulated, but with reopening in full swing and the vaccine rollout continuing, should I look to add shares to my portfolio now?
IAG share price resurgence?
As I write, IAG shares are trading for 184p. This time last year, shares were trading for 95p, which means they have increased in value by close to 100%. This is still a far cry from the 459p per share price in January 2020 they were trading at pre-pandemic. The price is still rising slightly, albeit nowhere near pre-crash levels.
I believe this mini-fightback has been due to the reopening of the economy and vaccine rollout. Governments using their own criteria to assess a travel destination’s safety as well as costly PCR tests and enforced quarantine hotel stays have continued to keep a stranglehold on progress for airlines, including IAG. This has also kept the IAG share price relatively low in my opinion.
Positive and negatives
To help me make my mind up whether I should buy IAG shares for my portfolio, I have drawn up a list of some positives and negatives.
POSITIVE: The continued vaccine rollout and redesign of the UK’s traffic light travel system, coupled with PCR tests being less strenuous, will benefit IAG. There will be more appetite and less cost involved for travellers as well as more destinations available. For example, the US is opening borders for vaccinated travellers. Pent-up demand could also benefit IAG.
NEGATIVE: The Covid-19 virus has not disappeared. With winter on the horizon, I fear there could be further implications such as restrictions caused by new strains that affect appetite for travel and holidays.
POSITIVE: IAG has a robust balance sheet and plenty of liquidity. This means it will not need to conduct a rights issue, like easyJet has, for instance, to keep the lights on and pay bills.
NEGATIVE: There is a lot of economic uncertainty right now that could affect the IAG share price. The rising cost of fuel and other costs will tighten the purse strings for consumers and affect costs for IAG itself as well. This could, in turn, affect its bottom line.
POSITIVE: IAG recently announced it is starting a short-haul business operating out of Gatwick. This will increase its footprint and enhance its offering overall. It could be another revenue stream to aid its recovery.
NEGATIVE: Competition to regain customers is more fierce than ever, especially in the short-haul market IAG is attempting to enter. All airlines have lost millions in revenue and will be looking for ways to gain a competitive edge over rivals.
My verdict
I wrote about the IAG share price in January and decided it was on my no-fly list. My stance has not changed. As a consumer, I am buoyed by the reopening and ability to travel once more. As a savvy investor, I believe the negatives outweigh positives for investing in airline stocks, especially IAG right now. I will keep an eye on developments, however.
Jabran Khan has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
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