ii view: shares in British Airways owner IAG ready for take-off?

Full-year results to 31 December

• Revenues up 28% to €29.5 billion
• Adjusted operating profit of €3.51 billion, up from €1.25 billion in 2022
• Net debt down 11% to €9.2 billion
• No dividend payment

Guidance:

• Expects non-fuel unit costs to increase slightly in 2024

Chief executive Luis Gallego said:

"In 2023, IAG more than doubled its operating margin and profits compared to 2022, generated excellent free cash flow and strengthened its balance sheet position, recovering capacity to close to pre-Covid-19 levels in most of its core markets.

"In 2024, we will execute on our strategy, building long-term value into the business. We will focus on strengthening our core airline businesses and on developing IAG Loyalty and our other asset-light growth opportunities, and we will do this while operating under a strong financial and sustainability framework. 

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ii round-up:

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

It operates a fleet of over 570 aircraft across several brands, flying more than 100 million passengers annually to 91 different countries.  

It is a Spanish registered company with shares traded on the London and Spanish Stock Exchanges.

Group brands include UK-based British Airways, Spanish airlines Iberia, Vueling, and Level, and Ireland's Aer Lingus. 

For a round-up of these latest results announced on 29 February, please click here. 

ii view:

Employing over 70,000 people globally, IAG competes against rivals such as Air France-KLM (EURONEXT:AF) and Deutsche Lufthansa AG (XETRA:LHA) and is a constituent of both the FTSE 100 and IBEX 35 indices. Passenger revenues generate the bulk of sales at 88%, with cargo revenues at 4%. Other revenues include those from its BA Holidays business, demand for Iberia’s third-party maintenance and repair services, along with revenues derived from its Avios customer loyalty scheme.  

For investors, major global events including wars in Ukraine and the Middle East and increased tensions between the West and China, should not be forgotten. Inflation and elevated costs such as wages continue to pressure companies to reduce other discretionary costs such as business travel. Airline industry emissions and climate change still requires further action, while group net debt of €9.2 billion (£7.9 billion), remains close to IAG’s stock market value of £8.3 billion.

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On the upside, passenger demand and capacity are now back to about where they were prior to the pandemic. Strong market positions include a 45% share of the Europe to North America market and a 32% share of the Europe to Latin America market. A push towards more fuel efficient and climate friendly twin engine planes continues, while a focus on reducing net debt, which grew during the pandemic, is ongoing. 

While there are many factors affecting the airline industry, there are signs of a sustainable recovery in air travel and profitability at IAG, which should also benefit from a transformation programme now underway. The shares are also cheap versus both history and peers, a resumption of dividend payments is likely at some point, while a consensus analyst estimate of fair value sits at over 220p per share.  

Positives: 

• Diversity of brands
• Industry consolidator

Negatives:

• Heightened geopolitical tensions 
• Halted dividend payment

The average rating of stock market analysts:

Buy