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Is the IAG share price, and other airline stocks, a bargain as the US lifts travel ban?

The IAG [IAG.L] share price took off during the week commencing 20 September, following the news that the US plans to lift its EU travel ban. The conglomerate owns British Airways, Aer Lingus, and Iberia, making it one of the world’s biggest airline carriers, but it wasn’t the only airline stock to see some lift.

Indeed, investor and trader optimism wasn’t restricted to one side of the Atlantic, with US carriers Delta Air Lines [DAL] and United Airlines [UAL] posting strong gains.

After months of travel restrictions, it won’t come as a surprise to learn that many airline stocks are still down from pre-coronavirus pandemic levels. That could mean that there are still some bargains out there, with several airline stocks looking at more than 20% upside based on average analyst targets.

 

 

What’s happening with IAG’s share price?

IAG’s share price gained more than 17% throughout the week ending 19 September, in what is a much-needed boost for the owner of British Airways. IAG’s share price has been on a downward trend since the middle of June and is still trading below the $178 mark it hit on 5 August.

Dragging the share price down has been continued travel bans, quarantine measures and the spread of the COVID-19 delta variant. British Airways has also been involved with a long-running dispute with union Unite over a planned overhaul (i.e., cutbacks).

On 23 September, British Airways announced that it was scrapping plans to launch a short-haul subsidiary at Gatwick Airport, which gave the IAG share price some turbulence. The stock managed to regain altitude on 24 September, rising 1.96% on the day to close at 175.6p a share.

Investors and traders believe that the reopening of North American routes could help the IAG share price continue to climb. 

 

Airline stocks take off

Airlines provided a bright spot in what was a turbulent week’s trading, encompassing both the Evergrande fiasco and central banks signalling that the era of cheap money was coming to an end.

While the sector-tracking US Global Jets ETF was up 6.4% throughout the week ending 19 September, the Dow and Nasdaq effectively ended the week flat, despite having managed to recover losses incurred at the start of the week.

The decision to lift restrictions for international flights into the US means that people from anywhere in the world can fly into the country from November. The lifting would apply to fully vaccinated travellers who had tested negative for COVID-19 up to three days before travel and would have to wear a mask on board flights.

“We welcome the Biden administration’s science-based approach to begin lifting the restrictions on travel to the U.S. that were put into place at the start of the pandemic. We’re looking forward to welcoming more customers back to easy, seamless international trips for business, for leisure, and to reconnect with family and friends” - American Airlines CEO Doug Parker

 

“We welcome the Biden administration’s science-based approach to begin lifting the restrictions on travel to the U.S. that were put into place at the start of the pandemic,” American Airlines CEO Doug Parker said in a statement. “We’re looking forward to welcoming more customers back to easy, seamless international trips for business, for leisure, and to reconnect with family and friends.”

This lifts a ban that has been in place for 18 months, having been put in place by the Trump administration at the height of the pandemic. The Biden administration has been reluctant to remove the ban, despite heavy lobbying from European leaders.

British Airways boss Sean Doyle described the announcement as a “historic moment”, but it wasn’t just IAG’s share price that benefitted. Air France and Lufthansa both saw strong gains. In the US, American Airlines, Delta, and United all gained. Many of these are still trading down where they were in the summer, let alone before the pandemic.

 

Upside potential based on analyst price targets

 

Stock

Average analyst price target

Upside potential (%)

American airlines

$21.25

1.75

Delta

$55

29.1

IAG

225.9

31.2

South Western

$65

24.2

United Airlines

$59.5

25.3

Based on Refinitiv data as of 24 September 2021.

 

Delta’s share price is still 25% down from where it was at this point two years ago, while IAG’s share price is down a massive 63% in the same period. Most of these losses were taken in February last year as the pandemic broke out, and with the ongoing restrictions and concerns over the delta variant, these stocks are, at best, in recovery mode.

For investors looking to take advantage of a sector where share prices are still suppressed by the pandemic, airlines could be worth investigating. However, it’s not without risk, as any change in policy could see stocks grounded once again.

Disclaimer Past performance is not a reliable indicator of future results.

CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.

CMC Markets does not endorse or offer opinion on the trading strategies used by the author. Their trading strategies do not guarantee any return and CMC Markets shall not be held responsible for any loss that you may incur, either directly or indirectly, arising from any investment based on any information contained herein.

*Tax treatment depends on individual circumstances and can change or may differ in a jurisdiction other than the UK.

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