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International Consolidated Airlines Group

The travel and leisure industry has been devastated by the coronavirus pandemic. Thousands of restaurants, theatres, cinemas, leisure complexes, high streets, and holiday destinations have been carved out of the economy while the world is in lockdown.

There are still many worries ahead for the world of travel and leisure as new variants of the disease emerge and cities like Paris go into their 3rd wave lockdown.

The vaccine rollout in the UK and the USA has been exceptionally good for the 1st dose but now we’re looking ahead to potential vaccine shortages. The UK government is determined to stick to its lofty goals of vaccinating all of the vulnerable people by April 15th, 2021 and then all the remaining adults in the UK by the summer. Some will say, no one is safe until the world has been vaccinated but at some point, the strains on the health care system will be reduced sufficiently and kept at manageable levels, that the broader economy including travel and leisure will be re-opened to hopefully pre-covid levels.

HSBC published a report on consumer preferences and habits asking them about their views on future spending trends across the food, leisure, and travel industries. On the question of the propensity to travel, consumers' response was generally negative towards travel in 2021.

However, on the question of whether those surveyed would travel abroad in 2021, the 22% of yes votes could be boosted to 51% as 29% of the survey respondents said they would travel if they were vaccinated. 46% of those surveyed said they were likely to take fewer trips and that would go across the corporate sphere too, as companies now have less need to travel for business meetings after spending a year on zoom.

Taking the HSBC snapshot at face value it could be deduced that there will be a return to travel for both tourism/holidays and business, but it will most probably be a lot less than pre-covid times. This is why I am interested in the share price of the International Consolidated Airlines Group.

As the name suggests several airline companies through acquisition are under one umbrella company. The company IAG has freight/cargo, short and long-haul routes so cover all air travel from goods, economy travel, to the top premium business passengers.

Within the basket of companies is the UK’s leading airline British Airways (BA).

In a report published in 2020, during the period 2018 to 2019 BA had a lead over Virgin Atlantic after 6000 passengers were surveyed by Statista.

There is no reason to believe that the travel consumer will have changed their preference over the last year for their preferred choice in the airline, but it may come down to two things. The price point of flying or the quality of experience, depending on whether people would rather pay less due to their finances being crushed or they would rather pay more and have a better experience for something they are planning to do less.

IAG’s share price slumped at the onset of lockdown and then again when they completed a €2.74billion rights issue, which was needed to keep its finances on track. The company has sold assets to keep cash flowing in while they wait out the coronavirus and are a real canary in the coal mine to how well the world is doing with the battle against covid-19.

Looking at the charts, the share price of 83p is the solid support level, having been tested through several market downturns from the highs of 1997 through to the lows of 2003. The Great Financial Crash (GFC) tested that support zone prior to the covid lead market crash of 2020. If IAG can get a close above the highs of the September 2020 candle, I believe that will confirm the worst is over for the share price, assuming all else stays equal or with a bit of luck gets better for the world as well as the company.

If you are not keen on buying the IAG stock the alternative airline plays could be TUI and Easy Jet. This April will be key for the airline industry as they will need to see bookings for seats on planes to be on the rise for the summer months. TUI and EasyJet supply travel routes into Europe and with the 3rd wave happening now, there is a high risk that travel into Europe stays depressed for a few weeks too many for these stocks to catch a bid. But if there is news of lockdown restrictions across the majority of routes being eased, this will be the trigger to buy.

The long-haul flights to the USA are currently under severe restrictions as President Biden signed the executive order under guidance from the US Centers for Disease Control and Prevention (CDC) to restrict travel from the United Kingdom but last week’s there was talk around the possibility of these restrictions being lifted in the coming weeks. Hence why the deep dive into the Airline industry may be worth considering.


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