International Airlines Group (LSE: IAG) has seen a bigger share price gain today than any other FTSE 100 share today. This is despite an expectedly poor full-year result for 2020.
IAG’s dismal results
IAG’s revenues are down almost 70%. It has also run up an €7.4bn loss, compared to an €2.6bn profit last year.
As per a Financial Times report, this is one of the largest losses racked up by a British company. It adds that FTSE 100 oil biggies BP and Royal Dutch Shell are the only ones to have lost more.
IAG has not given guidance for 2021 either, because of “the uncertainty on the impact and duration of COVID-19”.
Yet, the IAG share price is up 4% as I write.
I think there are three reasons for this.
#1. Putting the pandemic behind
With vaccinations underway globally, the pandemic can recede at speed now.
Travel bans are being lifted. easyJet reported a jump in holiday bookings earlier this week after the phased end to the lockdown was announced. Its share price rose after that.
It is no wonder that the IAG share price is rising too. A spurt in travel demand will have a positive impact across the travel and hospitality sector. IAG, the owner of British Airways, is no exception.
#2. Economic outlook is strong
And it is not just pent-up holiday demand that is due to make a comeback, I reckon business demand will be back on its feet too.
While some business travel may have been lost forever to the convenience of video conferencing, not everyone agrees that working from home is a long-term solution.
Further, economic growth is expected to bounce back. In the last quarter of 2020, the US economy grew by 4.1% as per latest revised numbers. A growing economy means more likelihood of travel.
And if companies would like to go back to the old-normal, there is also hope of going back to growing air travel demand.
#3. IAG share price is still muted
The IAG share price is also still just a fraction of what it was pre-market crash. I doubt if it will go back to those levels in a hurry, but going by its improving prospects, I think investors can find it more attractive in the near future.
Risks to the IAG share price
The stock is not without its risks, though. We will be significantly into 2021 by the time a critical number of people have been vaccinated, making travel safe. This means that we should not have high expectations for IAG this year.
Further, it is widely expected that air travel will take at least another couple of years to get back to 2019 levels. And if the economic predictions do not play out as anticipated, I think it could be even longer.
On balance though, at present the odds are tipped in favour of the IAG share price, I think. I’d consider buying it.
