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Should I back the IAG and easyJet share prices in 2021?

Rupert Hargreaves
·3-min read
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University graduate student diploma piggy bank

If I had to pick out the worst-performing investments of 2020, the IAG (LSE: IAG) share price and easyJet (LSE: EZJ) share price would have to be strong contenders.

In a year in which global air travel came to a virtual standstill, these two firms saw their sales and net income plunge. Both companies, which were formally some of the most fiscally healthy airlines in Europe, have had to rush to raise funds from investors to keep the lights on and planes in the sky.

However, as the world starts to move on from the pandemic, I think these investments may begin to shine again in 2021. And with that being the case, I’m beginning to wonder if I should back the IAG share price and that of its smaller peer in the new year.

Major headwinds

Before the pandemic, easyJet was considered to be one of Europe’s best-run airlines. Now it’s not so clear.

Nevertheless, what is clear is the fact that the group has managed to maintain its brand reputation. When the air travel market opened briefly over the summer, consumers flocked to the company. This helped support the easyJet share price, as it bought in some much-needed cash.

Based on this, I think that if the business does manage to weather the storm, it could be a good investment in 2021. The company has claimed it has enough funding to get it through the pandemic in the near term. That’s incredibly positive. If true, when sales start to pick up again in the new year, easyJet could achieve a faster recovery than its peers.

By comparison, I don’t think the IAG share price presents such an attractive proposition. The owner of the British Airways brand doesn’t have the same level of flexibility as its smaller peer. That’s something that concerns me.

IAG share price concerns

IAG’s flagship BA brand harvests the majority of its revenues from the lucrative Atlantic market between London and New York. The company controls most of the landing slots on this route in the UK, which gives it a strong competitive advantage.

But in other markets, it doesn’t have a similar advantage. This could prove to be a problem over the next few years as other airlines fight each other for customers. Speaking from personal experience, I know that the BA offering is more expensive than that of easyJet across Europe, with the same level of comfort. In an economic recovery, consumers are unlikely to want to pay more for a similar product.

As such, while I do believe the IAG share price could yield positive total returns for investors in the long run, I’d rather own the easyJet share price. In my opinion, the latter’s product should appeal to consumers much more in economic recovery.

The post Should I back the IAG and easyJet share prices in 2021? appeared first on The Motley Fool UK.

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Rupert Hargreaves has no position in any of the shares 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.

Motley Fool UK 2020