JUSTIN URQUHART STEWART: Airline shares prepared for take-off in 2021

What’s Happening?

Locked down, fed up and thoroughly brassed off. Not exactly the recipe for a brilliant holiday period, but the good news is that 2021 will be better.

With a new president in the US, new vaccines to tackle the virus, new investment in global economies and new confidence starting to return, compared with this year, there are quite a few reasons to feel positive.

Overhaul: A few airlines have taken the opportunity of the pandemic not just to shore up their financial positions, but also to carry out some drastic and no doubt painful surgery

We can already start to see the returning growth in the world economy in the Far East.

Why Does It Matter?

For all of us as investors, this improving news flow is important as it should give us the strength of mind to invest for our futures. 

Unless you are of the depressive view that we are doomed, right now is a good time to be backing this recovery. However, we should ask what we think our world will look like next Christmas.

Let’s assume that the vaccines have had a positive result, let’s assume that the global economy has grown at around 4.5 per cent, and then let’s make a larger leap – that the UK has managed its way through the Brexit morass in some way. 

If all of that has occurred, then what is going to be the reaction?  

Whether it comes from industry, commercial retailing and/or personal spending, the grinding gears of growing expenditure will start to have an effect – and in my view one of the first areas to be affected will be transport.

What Should I Do?

For many of us, such an increasingly benign background will spur us to try to take a holiday, whether in a tent in Scotland like Boris, or preferably a more exotic break involving a flight, some heat and some sunshine.

As you will have seen on the news, the airlines have been hit hard, and some will have already disappeared by the time of this recovery. 

But there have been some who took the opportunity of the pandemic not just to shore up their financial positions, but also to carry out some drastic and no doubt painful surgery.

Any Suggestions?

One airline that has had a reputation for bold, but not always pleasant action was BA, now listed as IAG, which includes Iberia and Aer Lingus in its hangar.

Willie Walsh was IAG’s very tough boss until he recently stepped down. The fleet, staff (pilots and crew) contracts and financing have all been ‘overhauled.’ This, in the case of the employees means cuts in packages, as well as numbers.

So if like me you will be flying again next year, then the success and not just the survival of the fittest will be a key measure. 

What to do? IAG has already risen from 76p to around 156.35p but is still way off the top of 257p, so remains good value. Or for less risk, try the SPDR Transportation ETF.