The International Consolidated Airlines (LSE: IAG) share price tumbled on Friday as investors recoiled from the news that a far-more-powerful variant of the coronavirus had been found in Southern Africa.
As I type, the UK has suspended flights from six countries on the continent. By the time you read this, it could be more. If existing IAG holders are looking for crumbs of comfort, one might say that pretty much everything else — including other airline stocks, tour operators and hoteliers — fell in tandem.
So, where next for the British Airways owner? Well, no one can know exactly what will happen next. Even so, we can come up with a number of scenarios as to what could. For ease, I’ve gone to both extremes.
The worst-case scenario
By far the worst possible turn of events for markets — and the IAG share price — is for evidence to emerge that the variant is running riot. As successful as the UK’s vaccination programme has been, the NHS was already trying to contain another outbreak of infections before Friday’s news hit. Any suggestion that the existing vaccines aren’t powerful enough will compound the issue. Perhaps worst of all, we won’t know for a few weeks. And the market isn’t partial to uncertainty.
Naturally, all this won’t do IAG any favours. As concerns mount, we can expect more travel restrictions to be imposed. That will put the already indebted FTSE 100 member under yet more financial pressure when it can least afford it. Add other concerns such as the prospect of interest rate rises and soaring prices to the mix and things could get very nasty.
On the other hand…
Now let’s ponder the best outcome.
News in December that the spread of this new variant has been contained would clearly be a good thing, as would indications that it’s not as strong as first thought (and/or existing vaccines can be quickly modified). I wouldn’t expect the new travel restrictions to be dropped. However, it may mean that recently reinstated (and lucrative) routes can stay open.
Should all this come to pass, I’d speculate the IAG share price will bounce hard in December before levelling off as skilled (lucky?) traders take profits. What I believe is less likely to happen, however, is for any rise to be sustained. For me, there are simply too many unknowns ahead. Just knowing that another variant has been found highlights that IAG’s road to recovery will be long and hard.
IAG share price: risk vs reward
Throughout the coronavirus crisis, I’ve steered clear of investing in airlines. Depending on the time period one selects, this has either been a huge mistake or a wise move. Between October 2020 and March 2021, for example, the IAG share price more than doubled. In the last six months, the same stock has lost a third of its value. Investing is hard.
As a committed Fool, I’m looking to make money from shares over the long term. From this perspective, there could be a place for IAG in my portfolio, especially if I were sufficiently diversified elsewhere. With a huge amount of quality stocks to choose from, however, I’m still hesitant, especially as others offer a solid dividend stream to boot.
Will the IAG share price recover in December? I’m not counting on it.
