The airlines have been among the most severe casualties of Covid-19. Take International Consolidated Airlines Group (LSE: IAG) for example. This UK share has lost almost two-thirds of its value since January 1 as its planes have been grounded en masse.
The battle is far from over either as uncertainty over the mass rollout and the efficacy of a vaccine lingers. The spread of a super-contagious new coronavirus variant in recent weeks has added to concerns for the broader travel industry too. The Netherlands has just slapped a new travel ban on flights to and from the UK in response to this fresh strain.
UK share investors who are prepared to tolerate a higher level of risk could be richly rewarded in the years ahead though. The wrecked balance sheets of many travel stocks mean that share pickers need to tread extremely carefully before investing here. But IAG is one share that could deliver titanic rewards during the eventual bull market.
The FTSE 100 business faces colossal headwinds as we move into 2021. Just last week its British Airways division dropped 15 long-haul routes to the likes of the Seychelles and Sydney. However, the awful Covid-19 crisis presents considerable long-term opportunities to those airlines that are left standing.
Considerable M&A opportunities to boost profits
It’s not only a considerable thinning of the market that could turbocharge IAG’s revenues during the 2020s and beyond. This particular UK share can also put its robust balance sheet to work to pick the bones of its competitors.
Reports that IAG will acquire Spanish airline Air Europa for €500m have emerged in recent days. Amazingly this is half of what it offered to acquire Air Europa just a year ago. And it illustrates the scale of the firesale that the stronger airlines can exploit to supercharge long-term profits growth.
IAG already owns Aer Lingus and Vueling and the move will further bolster its position in the fast-growing budget sector. What’s more, the Footsie firm wouldn’t have to pay a penny for Air Europa until 2026, giving it extra breathing room to tackle Covid-19 lockdowns.
A UK share that’s poised to soar?
IAG clearly isn’t without its share of significant risk. But the FTSE 100 flyer could deliver titanic shareholder to more courageous investors during the inevitable bull market. The Ryanair share price rocketed more than 270% from 2008 and 2018 following the banking crisis. And New York-listed American Airlines more than trebled in value over the same period.
I believe that IAG is a very-attractive dip buy following its colossal share price drop in 2020. But if news flow changes and I don’t fancy investing in it that’s fine. There are plenty of other terrific UK shares that could deliver brilliant returns despite the uncertain economic environment.
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Royston Wild 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.
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