Key points
- Covid-19 restrictions have battered the travel industry
- The IAG share price is down 61% from the beginning of the pandemic
- Early signs of a recovery have appeared in the industry
The Covid-19 pandemic has had a catastrophic impact on the travel industry. With the milder Omicron variant, however, it is possible that travel is on a one-way ticket back to normality. International Consolidated Airlines Group (LSE: IAG) owns a number of airlines, including British Airways, that operate across the globe. I already hold IAG stock, but should I be buying more in anticipation of a return to pre-Covid conditions this summer?
A pandemic battering
In the company report for the year to 31 December 2020, revenue stood at just 30% compared with the same period in 2019. IAG recorded a €7.8bn loss during this time. This is hardly surprising, however, given that most countries around the world shut down for many months. Some popular destinations like Hong Kong still have strict measures on any inbound aircraft. Furthermore, from February 2020, when news of the pandemic was starting to filter through, until now, the IAG share price is down 61%.
Just when we thought international travel was regaining some degree of normality, the Omicron variant emerged late in 2021. Investors took this development seriously and the IAG share price fell 30% from mid-November to mid-December. This led to Bank of America downgrading IAG in January 2022, because airline capacity had still not returned to pre-Covid levels.
Reasons I’m optimistic
Although recent financial information and share price movement are gloomy, I have many reasons to be optimistic about the direction of travel for IAG. Firstly, Omicron is much milder than previous variants. Only today, the UK withdrew most domestic restrictions. On the international front, testing for travel has essentially been outlawed in the UK. I think it is only a matter of time until other countries follow suit.
In November 2021, the transatlantic route to the US reopened. This is encouraging, because it is IAG’s most lucrative business. This encouraged Citi to downgrade short-haul carriers like Wizz Air, in favour of longer-haul airlines. While IAG does operate shorter flights, the widespread restrictions still in place throughout Europe has made a recovery in this area more difficult.
Recent consolidated results for the nine months up to 30 September 2021 are also reassuring. In the third quarter, capacity stood at 43.4% of the same period in 2019. This marked an increase from 21.9% in the second quarter of 2021. While we still have some way to go, it is heartening to see these figures going in the right direction.
The pandemic hit airlines extremely hard. This is evident from 2020 financial results, and IAG was no exception. With more governments lifting restrictions following the milder Omicron variant, however, it is only a matter of time until international travel opens up even further. For me, I will be adding to my existing IAG stock because the share price is still at relatively low levels.
