Key points
- A small number of countries have already fully reopened borders without any restrictions
- The transatlantic route is worth $1bn to the firm per year
- Risks remain regarding future variants and rising fuel prices
Global travel effectively shut down for large parts of the pandemic. This had a devastating impact on the finances of the travel sector and International Consolidated Airlines Group (LSE: IAG) was no exception. Boasting a number of instantly recognisable brands, like British Airways and Aer Lingus, the company operates flights the world over. With the end of travel restrictions in sight, I think the IAG share price could soon take off. Is now the time to be adding to my holding? Let’s take a closer look.
The reopening of borders
Just this month, broker Liberum stated it “remains optimistic” about the IAG share price. This is primarily because it anticipates a “resumption in the relaxation of travel curbs”. Indeed, it is not difficult to understand why Liberum struck such a positive note.
In recent weeks, more countries have been reopening borders. Some have lifted the restrictions altogether. Last weekend, for instance, Norway decided to allow international visitors to enter regardless of testing or vaccination status.
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Switzerland followed yesterday, with the Federal Council stating that it “will no longer be necessary to provide proof of vaccination, recovery or a negative test or complete an entry form”.
Sweden and Spain have also made moves to make entry easier for international travellers. I believe this may have a domino effect, as potential tourism revenue may inspire more countries to fully open. Increased travel will likely be very positive news for the IAG share price.
The risks and rewards of the IAG share price
Adding to my holding is not without its risks, though. There is the eternal possibility of further variants shutting down travel again. Furthermore, rising fuel prices could negatively impact the IAG share price, because this affects the firm’s purchase of jet fuel, unless it is currently hedged at lower levels.
Nonetheless, Morgan Stanley placed a €2.50 (£2.09) price target on the company. It cited recovering cash flow for doing so. What’s more, the business is truly global, meaning that it will also benefit from the recovery of corporate travel. Rival airlines, like easyJet and Wizz Air, do not have this luxury, because they are short-haul-focused. Indeed, it is estimated that the transatlantic routes operated by British Airways and Aer Lingus are worth around $1bn to IAG annually.
This reopening investment does come with its risks, like further variants and fuel prices. Nonetheless, I predict that more countries will follow in removing all pandemic restrictions. These moves could mean a surge in the IAG share price, owing to increased global travel. I will be adding to my holding without delay.
