In the wake of the pandemic, travel stocks took a beating as they grappled with Covid-related challenges.
As such, despite a relatively slow and painful path to recovery, IAG (LSE:IAG) shares have benefitted immensely from the world’s steady return to more normal travel patterns.
So, with airline stocks bouncing back from their pandemic lows, would I consider buying IAG shares for my portfolio today?
IAG share price fluctuations
The first thing to note is that IAG’s recent share price performance has been pretty volatile.
Over the last six months, the group, which owns British Airways, Aer Lingus, and Iberia, has seen its shares rise by a whopping 60%.
However, since this time last year, the IAG share price has climbed by a more subdued 6%.
Moreover, if I’d bought shares in January 2020, they would have lost around 78% of their value by October.
That said, I’m not concerned by short-term fluctuations in share price. Instead I look to evaluate a company on the basis of its current performance and future prospects.
Where is IAG today?
Global airline traffic has continued to rebound in the aftermath of the pandemic.
Crucially, this means planes are full enough per trip that profitability is becoming more sustainable once again.
In particular, IAG is benefiting at present from holiday-makers’ pent-up travel demand.
While business-related travel is steadily improving, a strong recovery in the holiday market has been the group’s real benefit.
However, while there is plenty of travel demand remaining for now, it can’t go on forever. My core concern is how IAG will fare with a return to normal levels of demand, particularly in light of a hefty debt pile.
Nevertheless, the group is also benefitting from consolidation in the industry, with a handful of smaller carriers being forced out of business.
On top of this, IAG’s acquisition of Air Europa demonstrates that parts of the market are there for the taking if the company can be strategic with further acquisitions.
Largely positive financial results
Bolstered by rebounding travel demand, IAG posted an impressive €1.2bn profit for 2022. That’s up from a €3bn loss in 2021 as revenues more than doubled to €23.1bn from €8.5bn.
The group’s net debt also reduced to €10.4bn after ballooning during the pandemic.
Despite this, I’m wary of the overall debt pile, which remains substantial and attracts significant interest payments.
As a result, any shareholder payouts will be on the back burner as debt management takes precedence for the foreseeable future.
What does the future hold for IAG?
After restoring capacity to 87% of pre-pandemic levels in the final quarter of 2022, IAG expects capacity to be around 98% of 2019 levels in the new financial year. That’s positive news for investors.
Moreover, underlying operating profit is expected to be €1.8bn to €2.3bn, with most of the improvement coming in the first half of the year.
As such, despite the challenges facing the group, I wouldn’t be surprised to see IAG shares continue to take flight over the next few months and beyond.
On this basis, if I had the cash to spare, I’d happily buy IAG shares for my portfolio today and hold them for the long term as global travel continues to rebound.
