Could this help the IAG share price take off?

Rupert Hargreaves explains why he thinks recent travel changes could help the IAG share price if travellers return to the skies.

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The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

For much of the past year, the International Airlines Group (LSE: IAG) share price has faced significant selling pressure from investors as its outlook has remained uncertain.

The pandemic floored the airline industry. Even though some parts of the sector have since started to recover, as a whole, carriers are still facing strong headwinds. 

IAG, which owns the British Airways brand, isn’t alone, but it has suffered more than most. The company relies on its lucrative transatlantic routes for the majority of its income. And while domestic routes in Europe and the US have reopened, the transatlantic market is still frozen. 

However, there are some signs the route could be beginning to thaw. 

IAG share price outlook

Travel bans between Europe and the US have effectively closed the transatlantic travel route through our pandemic. 

Many restrictions are still in place but, from the beginning of last week, fully-vaccinated travellers arriving from amber list countries in the EU and US into the UK were no longer required to quarantine on arrival. This change has encouraged IAG’s management to increase its operating schedule over the next few months. 

The company was operating around a fifth of capacity in the first half of the year. It now expects to increase operating capacity to around 45% between July and September. This could increase to 75% by the end of the year.

Of course, these projections are likely to change. The pandemic isn’t over yet. Many countries around the world are still grappling to control the Delta variant. It could be years before the battle is truly over. 

Still, passengers are willing to fly. British Airways has said it saw a 95% increase in the number of bookings for flights from the US to the UK after the government’s amber list plan was announced. Admittedly, this growth was from a relatively low base, but the number is heading in the right direction. 

Time for take-off?

As passengers return to the skies, I think the IAG share price could follow suit. The group reported total revenues of €2.2bn for the first six months of the year, down from €5.3bn for the same period last year. Its operating loss was €2bn. A back-of-the-envelope calculation suggests revenues could also double if the company doubles flight capacity in the third quarter.

This may reduce losses by 50% as well. And a further increase in capacity to 75% by the end of the year may help the company return to break-even by the end of 2021. 

When the company finally stops losing money, I think investors will revisit the IAG share price. That’s precisely what I plan to do. While I’m optimistic that the business will return to growth, I want to wait on the sidelines for further progress before I buy the stock.

A lot could change between now and the end of the year. As such, I’m unwilling to invest today with such an uncertain outlook.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be considered so you should consider taking independent financial advice.

Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK 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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