MR MONEY MAKER: Add wings to your savings as British Airway’s owner IAG gets ready for take-off
Remember flying? Well for anyone living near an airport or under a flight path, the past year has been a time of glorious silence and I can at last hear my local birdsong as well as the squawking parakeets.
However it has of course been disastrous for any business connected to those planes and all their supporting infrastructure.
For some companies this period will have been terminal (no airport pun intended), but for others it has been a brilliant opportunity to carry out some unpleasant surgery that would have been far more controversial in normal times.
Ready for take off: For some companies this period will have been terminal (no airport pun intended)
So who are these Machiavellian beasts and what dark arts are they practising? Well dark arts can also be described as corporate reengineering and redevelopment for the future, and one such beast is the tediously titled IAG – or British Airways and a clutch of other names to the rest of us (including Aer Lingus and Iberia).
Why Does It Matter?
The masters of IAG quite rightly have been planning for a the future, as of course all well managed companies should, but under the cloak of the economic shutdown, the group has been able to carry out radical surgery making them ready for the end of the pandemic.
Thus a chance to adjust your fleet of planes, adjust your employment contracts with both pilots and crew, renegotiate with suppliers and any other connections, oh and yes restructure it’s capital, debt and cash to survive the period of economic starvation. Painful and controversial maybe, but very effective if you are positive about the future.
Oh yes and one other benefit from this terrible time? When they open up again there will be fewer of those pesky competitors around to try and squeeze your margins.
What Should I Do?
For the moment we should be looking to design our portfolio for the recovery. On the assumption that the planned opening up progresses well, we British will go out and spend and our holidays will be near the top of our list (including mine).
So IAG, under whatever brand, is perfectly placed to benefit.
The company is still only running at 20 per cent capacity but that is bound to change as we see the vaccines work their magic and our economy opens up.
The IAG share price was 495p back in June 2018, having dropped to below £1 last summer. Since then the price has already doubled but I think is very capable of moving up strongly from here as both business and tourist confidence grows.
Rather than taking the risk on a single company, there is a good passive fund covering the sector on a far broader scale which is iShares STOXX Europe 600 Travel and Leisure ETF. Time then to give your investment some wings.
Justin Urquhart Stewart co-founded fund manager 7IM and is chairman of investment platform Regionally.