I think easyJet has a stronger brand, especially in the domestic European market. Meanwhile, IAG has more diversification. Its stable of brands, which includes British Airways, operate routes around the world in different markets. This diversification has been a benefit in the past.
Unfortunately, in the pandemic, IAG’s reliance on long-haul routes has proven to be a thorn in its side. Luckily, the proposed reopening of the highly-lucrative Atlantic corridor between the US and UK, proposed for November, should turbocharge the airline group’s recovery.
This development, which was announced earlier this week, is the reason why the IAG share price has outperformed the easyJet share price over the past 12 months. The shares have returned 82% and 57% respectively over the past year.
This recent development has also changed my view of which company is the better buy as a recovery investment.
The IAG share price outlook
Before the pandemic, IAG was flying high. Its lucrative long-haul routes generated tremendous amounts of cash, which management was using to buy up rivals and new planes.
The pandemic put an end to these growth plans and, over the past 18 months, the group’s been struggling to survive. But now, its recovery’s starting to gain traction.
Before the reopening of the Atlantic corridor was announced, management was planning to dramatically increase the number of flights in the second half of 2021. Now this is going ahead, IAG can ramp up its reopening plans.
I think increased sales on this route will support the group’s recovery and generate much-needed cash flow for the enterprise.
That said, this recovery isn’t guaranteed. If there’s another wave of coronavirus, countries may decide to slam their borders shut again.
EasyJet share price challenges
While the IAG share price is getting ready for takeoff, easyJet seems to be floundering in the highly competitive European market. Its challenges have inspired peer Wizz to make an opportunistic offer for the group.
easyJet will remain independent for now, but it’s had to ask shareholders for £1.2bn to keep the lights on. While IAG’s also had to raise money recently, I think the cash call illustrates easyJet’s issues. It needs to invest in its fleet, strengthen its balance sheet and fight off competitors.
The company does have a good track record of outmanoeuvring competitors in the European airline market. So I wouldn’t write off the group just yet. Still, I think it’ll face an uphill struggle to fight off competitors like Wizz.
The bottom line
Overall, when comparing the IAG share price vs the easyJet share price, I think the former has more recovery potential. As such, I believe it offers more value, and that’s why I’d buy the investment for my portfolio today.
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Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has recommended Wizz Air Holdings. 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.