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The share price of British Airways owner IAG (LON: IAG) has been relatively volatile in recent months. Indeed, it started the year at around 150p before surging to nearly 220p by March. Since then, it has declined to under 140p before rising to its current level of 165p.

Of course, the company is experiencing arguably its most challenging set of operating conditions in living memory. Covid-19 has caused a huge amount of disruption to the airline industry. Although travel restrictions have eased in recent months across certain destinations, the near-term outlook for the airline sector remains highly risky.

For example, a recent increase in Covid-19 cases in Europe could prompt more onerous travel restrictions. With winter approaching, this situation would perhaps be unsurprising. Equally, the case for an improving outlook could be made due to significant progress on vaccine deployment across the world. In essence, it is impossible to know the future path of Covid-19 and its impact on people’s ability, and desire, to travel.

However, in the long run it seems likely that a large proportion of demand for IAG’s services, and for other carriers providing international travel, will return. Certainly, the recent rise in popularity of video calls could reduce demand among business travellers. Meanwhile, environmental concerns may persuade some individuals to holiday in local areas.

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But these factors may be countered by an ongoing rise in the world’s population and increasing income levels in major emerging economies. This could mean that demand for air travel rises over the coming years, albeit with further uncertainty likely as the pandemic continues.

Therefore, IAG could experience improving operating conditions over the long run. In the meantime, its financial position and ability to raise further capital could mean it is able to overcome short-term threats posed by Covid-19 to enjoy an improving trading outlook. Indeed, it currently has liquidity of around £9bn as at the end of its most recent quarter.

As such, it could offer an improving share price outlook over the long run. In the meantime, though, further heightened volatility and relatively high risks seem likely due to the ongoing threat posed by Covid-19. This could translate into large swings in its stock price as per much of the current calendar year.

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Not Investment Advice
Note: Views expressed are those of the writer. The author does not own any stocks mentioned. The article is information, not advice. Share prices can rise and fall. Past returns are not a guide to the future. Please do your own research.

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