ii view: IAG has headwinds to navigate

Full-year results to 31 December

• Revenues up 9% to €32.1 billion (£26.8 billion)
• Operating profit up 26.7% to €4.44 billion
• Pre-tax profit up 23.5% to €3.77 billion
• Net debt of €7.5 billion, down from €9.25 billion
• Final dividend of €0.06 per share
• Total 2024 dividend of €0.09 per share, up from no payment in 2023
• New €1 billion share buyback programme

Chief executive Luis Gallego said:

“These results highlight the quality of our businesses and effectiveness of our strategy, underpinned by the successful execution of our transformation programme across the Group. We are delivering world-class margins and returns, in line with the targets we set out to the market just over a year ago. 

“We are focused on continuing to make our brands the first choice for customers, by growing our network and enhancing the customer proposition, while our disciplined capital allocation ensures we can continue to invest in the business, deliver strong financial results and create sustainable value for our shareholders.”

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ii round-up:

International Consolidated Airlines Group SA (LSE:IAG) is one of the world's largest airline groups.

The group operates a fleet of around 600 aircraft across several brands flying more than 100 million passengers annually to around 90 different countries. 

Registered in Spain, IAG shares are traded on the London and Spanish Stock Exchanges.

Group brands are UK based British Airways, Spanish airlines Iberia, Vueling, and Level and Irish based Aer Lingus. 

For a round-up of these latest results announced on 28 February, please click here. 

ii view:

Formed in 2011 following a merger of British Airways and Iberia, IAG today employs around 74,000 people in 77 countries. Operating out of core airport hubs London, Madrid, Barcelona and Dublin, rivals include Air France-KLM (EURONEXT:AF), Deutsche Lufthansa AG (XETRA:LHA) and budget airlines such as easyJet (LSE:EZJ) on many inter-European routes. 

Passenger revenues accounted for 88% of sales in 2024, with Cargo coming in at 4%. Other revenues at 8% include those from its BA Holidays business, demand for Iberia’s third-party maintenance and repair services, and revenues derived from its Avios customer loyalty scheme.

For investors, US imposed trade tariffs on Europe may potentially sour corporate and consumer sentiment, resulting in reduced travel to the US. UK passenger demand to the US could also be affected by weaker economic health and consumer and corporate budgetary pressures due to increased national insurance contributions and VAT on private school fees. Geopolitics cannot be overlooked, with ongoing conflicts in Ukraine and the Middle East, while airline industry emissions and climate change also warrant consideration.  

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On the upside, management outlook comments pointed to strong customer demand. Robust market positions include a 45% share of the Europe to North America market, while Iberia’s Europe to Latin America market share grew further in 2024. A return to brisk business from the pandemic has beefed up group cashflows, allowing a reduction of net debt and supporting a new €1 billion share buyback, while the group’s fleet is being upgraded to more fuel efficient and climate friendly aircraft.  

In all, headwinds for IAG have increased, with some investors potentially having taken profits. That said, a forecast dividend yield of around 3%, enviable market share and consensus analyst fair value target above 375p per share means this European airline is likely to remain a stock of interest for long-term investors.

Positives: 

• Diversity of brands
• Industry consolidator

Negatives:

• Heightened geopolitical tensions 
• Many factors outside of management control

The average rating of stock market analysts:

Buy