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The IAG share price has jumped 40% this week. I think it could soar further

Alan Oscroft
·3-min read
British Airways
British Airways

At the end of last week, International Consolidated Airlines Group (LSE: IAG) shares were down 84% since the beginning of the year. The reason is clear. The aviation business has been almost halted by the Covid-19 pandemic, and all airlines are suffering badly. But on Monday, after the latest vaccine news, the IAG share price was one of the biggest FTSE 100 winners on the day with a 25% jump, behind Rolls-Royce‘s 44% leap.

Social distancing might be helping a lot of businesses stay open. But keeping passengers further apart on aeroplanes is potentially crippling the business. And that’s with very few flights operating in the first place. Getting the airlines back into health needed a medical breakthrough. And if the claimed 90% efficacy of the new vaccine turns out to be dependable, we could be at the turning point.

IAG share price still rising

The markets currently appear very bullish. And further gains have catapulted the IAG share price to a 40% plus gain by midday Wednesday. Now, I’m trying to decide whether IAG is a buy right now, or whether it’s still too risky. I’ve had a long-term dislike for airlines for many years, based on a number of things. Firstly, there’s little or no differentiation in the provided service. The vast majority of flyers choose their carrier solely on price.

Additionally, airlines have little or no control over key external factors. The most obvious is fuel prices. In recent years, oil has been relatively cheap. But any significant rises could put a lot of pressure on the IAG share price, among others. Obviously, external factors like global pandemics are even harder to predict.

But though I don’t much like airlines, even the IAG share price surely has a level that says ‘buy’, doesn’t it? So should I put my long-term aversion to the sector aside and buy in for a potential short-term profit?

We’re not there yet

I’ve already spoken of some of the hurdles that still lie in the path of mass vaccination, so I won’t repeat them here. But we do need to remember that the pandemic is by no means all over yet. Still, if airlines can keep going until business does pick up, I think the IAG share price could end up looking like a bargain today.

On the survival front, I’d say IAG is currently looking good. It’s already raised funding, in a £2.5bn rights issue that saw demand outstripping supply. I reckon it’ll still take until the spring at the earliest, before we find out whether a mass return to jetting off to sunny places is on the cards. Or it might even be later, pushing well into the summer. But IAG should be fine until then. And even if it did need more funding, there seems to be plenty of appetite for it.

If I didn’t have my long-term block on investing in airlines, I might well buy IAG shares now.

The post The IAG share price has jumped 40% this week. I think it could soar further appeared first on The Motley Fool UK.

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Alan Oscroft 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