Does the Pfizer vaccine news affect my thinking around IAG (LSE:IAG)? The IAG share price has benefitted from the news of a potential Covid-19 vaccine. Last week, Pfizer and BioNTech announced preliminary analysis showed their vaccine could prevent more than 90% of people contracting the virus. Approximately 43,000 people took part in tests. One of the leading professors said he expected further analysis to show the vaccine would reduce transmission between people as well as stop symptoms developing in someone who has had the vaccine.
So what does that mean for IAG’s prospects? Well, in my opinion, not a lot has changed for me and I will explain why.
IAG share price woes
Covid-19 has hit few sectors harder than air travel. It has single-handedly managed to wipe out thousands of jobs and uncountable billions of revenue. In February, prior to the market crash, I could buy shares in IAG for 432p per share. Fast-forward a month later and its price had tumbled nearly 70% to just 133p. It’s price lowered even further in May where the beleaguered airline’s shares were available for 115p.
When the crisis first began, IAG remained steadfast in its confidence of overcoming the difficulties that lay ahead. It expected its liquidity levels would be sufficient but that was just not the case. Over the past few months IAG has raised billions from investors just to keep the lights on. This does not bode well for the longer term prospects in my opinion. Despite the encouraging news from Pfizer and BioNTech we are still some way from normality resuming and I think the IAG share price rise is a knee-jerk reaction.
IAG is pretty much on airplane mode for me in terms of investment viability. In simpler terms, like my phone on airplane mode, IAG is pretty much redundant.
The short term indicates the IAG share price may continue rising. However savvy investors should look towards the longer term. The airline industry is very capital intensive. It costs ridiculous amounts of money to invest in, keep, run, and maintain a large fleet of planes.
A Q3 trading update at the end of October made for abject reading. There were two key financial takeaways for me that stood out. Firstly, revenue was down 66% compared to the same period last year. In addition to this, net debt had risen 46%, which is worrying. There were some silver linings in an increased flight programme compared to Q2 and over 1,000 extra cargo planes used to distribute emergency supplies.
Plane and simple
I am indifferent when it comes to airlines. This global pandemic has taught me a lot about airline stocks and the industry. At this point I would not invest any of my hard-earned money in IAG.
Warren Buffett once said, “The worst sort of business is one that grows rapidly, requires significant capital to engender growth, and then earns little or no money. Think airlines.” When Warren Buffett speaks, I usually listen.
The IAG share price and its prospects longer term aren’t something I would be interested in right now. Instead, I would look at other alternatives with better prospects.
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Jabran Khan 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