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The IAG share price: here’s what I’m doing

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The outlook for the IAG (LSE: IAG) share price is incredibly uncertain at present. The pandemic has floored the British Airways owner, and it doesn’t look as if the company will catch a break anytime soon. Even though the vaccine rollout is gaining traction around the world, travel restrictions are likely to remain in place for at least the next six months. After that, it could take years for the travel industry to return to 2019 levels of activity. 

However, this is only a projection. Figures suggest British savers have put away £150bn over the past 12 months. Some economists believe consumers will rush out to spend this money when restrictions are lifted. That could lead to a substantial increase in the demand for flights and holidays overseas. 

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There are already some signs these projections have some weight. The world’s largest travel operator, Tui, recently reported that while summer bookings for 2021 were down compared to 2019 levels, the average spend was up by around 20%

Mixed outlook 

These projections make it very difficult for me to tell what the future holds for the IAG share price. In the most optimistic scenario, the vaccine rollout could increase demand for its services and boost prices in the next 12 months. On the other hand, if travel restrictions continue, the group may continue to lose money and seek another bailout from investors or the government. 

With so much uncertainty surrounding the outlook for the business, I’m going to avoid the IAG share price for the time being. However, I’ll be keeping a close eye on the airline group. 

Airlines generally have a reputation for being terrible investments. Only a handful have generated good returns for their shareholders in the past. IAG is one of those companies. The firm is well run and, for the past few years, management has been focusing on profit over growth. 

By focusing on profitability over growth, the airline group entered 2020 in a strong financial position. The pandemic has caused the company significant pain. But, unlike other airlines, it’s avoided painful restructurings or government bailouts. That’s a positive because many of these bailouts and restructurings have come with restrictions. These could hold back shareholder returns in the long term. 

IAG share price outlook 

Therefore, while I’m avoiding the IAG share price today, I intend to keep a close eye on the stock as we advance.

I think that when the economic recovery starts to gain traction, this airline group may be able to take advantage of competitors’ weaknesses and capture market share. Of course, the company has to survive the pandemic first, which is by no means guaranteed.

Still, from a long-term perspective, I think the business and its flagship British Airways brand have the potential to succeed in the right environment.

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Rupert Hargreaves owns no share 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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