Shares of British Airways owner International Consolidated Airlines (GB:IAG) were flying high on Friday after the company beat estimates for profits as it managed to control costs and its key transatlantic business soared. The airline posted a record full-year operating profit of €4.3 billion ($4.5 billion), up 22% year-on-year and beating the €3.7bn forecast by analysts. Revenue also topped expectations as it rose 9% to €32.1bn.
Following the stellar numbers the company announced a €1bn share buyback programme to be implemented over the next 12 months. Shares of the company, which also owns Spain’s Iberia and Irish carrier Aer Lingus, has risen over 130% in the last year as post-pandemic travel trends continued to boost demand.
“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,” said CEO Luis Gallego. “We are delivering world-class margins and returns, in line with the targets we set out to the market just over a year ago.”
IAG Rides out Delivery Delay Turbulence
As many European airlines have struggled to keep a lid on input inflation and faced delivery delays from aircraft makers like Boeing (BA), IAG has benefitted from cheaper fuel prices, limited delays, a drive to cut costs and a resilient travel market, particularly in its core transatlantic routes.
Low-cost carrier Ryanair (RYAAY) recently cut its passenger outlook for a second time due to failures by Boeing to deliver enough aircraft. The Dublin-based operator said it would carry 206 million passengers in its Fiscal year 2026, down from the previous goal of 210 million. Ryanair had already cut the guidance down in November from 215 million to 210 million due to delays at Boeing.
However, IAG did comment that profitability from its transatlantic business continues to be subject to new aircraft delivery delays and engine maintenance issues, which will impact plans for growth over the next three years. Specifically its 2024 and 2025, it said schedules have been “heavily affected” by reduced aircraft availability due to problems with engines on the mid-size, dual-aisle Boeing 787 fleet.
Despite the positive demand overall, IAG cautioned that business travel may never recover from the pandemic despite leisure travelers plugging the gap as they increasingly pay up for premium seats. While it saw an increase in corporate travel last year it estimates that demand for business travel will not fully recover to levels seen before COVID-19, particularly for short duration and short-haul trips.
Is IAG a Good Stock to Buy?
Overall, Wall Street has a Strong Buy consensus rating on IAG stock, based on 11 Buys and three Holds. The average IAG price target of 390.52p implies nearly 10% upside, though these figures are liable to change in the wake of the earnings update.
