To contain the pandemic, governments around the globe imposed rapid border restrictions in an effort to limit the spread of the disease. Travel stocks were forced to surrender.
International Airlines Group (IAG), which saw shares fall 67% between 456p and 150p in just two months, was one of the worst-hit. However, shares fell to 89p in September. This brought the total drop to 80%.
As vaccine trials and subsequent rollouts picked up pace, hope replaced despair. IAG shares reacted accordingly. They currently trade at 174p. This is a 95% rise from 2020’s lowest price, but shares must still gain 164% to regain the 456p price before the pandemic. The key to the sector’s recovery will be the
The UK government has expanded its list of safe (green-listed) countries to travel to – those that have low rates of Covid-19 infection and high rates inoculation. According to the financial press, travel restrictions may be considered.
All remaining Covid restrictions will be lifted starting July 19th. This is known as Freedom Day. According to some reports, those who have had their second vaccination will be able travel freely without quarantine.
Arrival or return. IAG and sector peers will welcome a resumption of global travel. IAG could also benefit from the cost savings made in the past 12 months.
There is a lot of potential for revenue growth, as passenger numbers are currently around 20% below pre-pandemic levels in 2019. IAG has a large European flight network through the British Airways, Iberia, and Aer Lingus brands. However, most of it is inactive at present.
There should be an immediate increase in passengers due to the reopening of’ tourist hotspots in the UK such as Spain and Portugal, Italy, Greece. Over the past year, IAG has taken aggressive cost-cutting measures. It has reduced its workforce by 30% and plans to eliminate its secondary hub at Gatwick airport.
IAG’s freight business has grown by 33% to $437m in the last 12 months. This contributes to the company’s healthy cash position, which is more than EUR8bn. Shareholders who were lucky enough to get shares last year are already getting handsome rewards.
It is important to ask “Will cost-cutting, increased freight income, and a return of international travel result in further gains?” Bank of America, Citigroup and Berenberg all believe so. They have reiterated their ‘buy’ ratings for the stock in recent weeks with accompanying target price levels as high as 250p. This is 43% more than the current price. Reassessment level – 150p
Technically, a significant drop below this price could indicate concern. It may also be associated with new or prolonged international travel restrictions.
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