International consolidated airline group (IAG)
Fundamental analysis
IAG was formed in 2011 through the merger of British Airways (the UK national carrier) and Iberia (the Spanish national carrier). IAG is a holding company that owns the individual airlines. The company has its official address in Madrid, but its headquarters and management are located in London. In addition, the company has bought or founded other airlines: Aer Lingus (Ireland), BMI (UK), Level and Vueling (both Spain). The company’s shares are traded on the London and Madrid stock exchanges. IAG employs nearly 70 000 people.
IAG’s main markets of focus are: transatlantic flights to the US and Canada, flights to South America, domestic flights in the UK and Spain and flights in Europe.
The main capacities offered are:
30% transatlantic flights
28% European flights
18% Latin America and Caribbean flights
Air travel is booming.
The oil price has been stable for the last two years. This contributes to the stable price of air tickets.
Results
3Q 2024:
The company raised its turnover by 7.9%.
It increased its operating margin by 1.4% to 21.6%.
It will launch a share buyback worth €350 million.
The company expects to continue its good performance in the last quarter of 2024.
Operating profit rose 15.4% YoY.
Turnover for the first 9 months reached EUR 24.053 billion.
Profit after tax is expected to be Euro 2.340 billion.
Technical analysis
The stock has been more volatile in recent weeks. It has a larger than normal price dispersion. The current high is over £300 per share, although the normal trading price is around £200 per share. This was due to a spike within a day a few days ago.
Since the start of the year, the share price has risen by 54%. In contrast, rival Lufthansa has lost 21% of its price and Air France – KLM has lost as much as 42% of its share price since the start of 2024.
The sliding trends have been on an uptrend since April 2024. Their current spread is widening, likely due to positive news for 3Q 2024.
The RSI is just outside the overbought zone.
Strong support is at £187 per share.
Conclusion
Airlines are not a stock that is on the primary radar of investors. Low margins and high costs don’t usually deliver big profits. However, IAG seems to have managed to reverse this negative trend. Operating margins above 20% are something that many competitors can only dream of. The group’s main airlines (British Airways and Iberia) benefit from their geographical focus. Flights to the west, particularly to the US and Latin America, are extremely profitable. And they are not burdened (for now) by any geopolitical constraints. Especially on flights to the US, British Airways has high profits. In contrast, the companies hardly operate flights to Africa and Asia, where other European carriers are facing one problem after another.
As long as the group maintains its strong profitability on flights across the Atlantic and to South America, it may yet grow. But if these flights are cut, for example due to the intervention of the newly elected US president, the group could start to lose its profitable routes quickly and the share price could fall in turn.