Since the beginning of 2024, the IAG (LSE:IAG) share price has fallen 8.2%. It’s been an inauspicious start for the year. Moreover, the airline operator didn’t experience a pre-Christmas surge like many other stocks. It’s now trading near its six-month low.
So is this a golden opportunity for investors?
Not much going on
There’s no obvious reason for the sell-off in IAG share this year. There’s been no announcements and jet fuel prices have remained relatively steady over the past 30 days. Interestingly, peers including easyJet and Ryanair haven’t seen the same selling pattern.
As such, I don’t really have an answer. It may be that investors thought there was better value elsewhere in the sector, and eventually negative momentum took hold. However, it’s hard to say.
It’s worth noting that Wizz Air actually performed worse than IAG over the first three weeks of the year. Delta has also performed poorly.
It seems IAG and some of its peers have fallen with the market, as investors lessened their expectations for interest rate cuts. easyJet and Ryanair must be exceptions.
What to expect in 2024?
The reason why we’re seeing the easyJet and Ryanair share prices outperform IAG perhaps lies in the broader forecasts for 2024.
There’s an obvious difference between easyJet, Ryanair, and IAG. And that’s that the latter has less of a focus on short-haul flights than the former two.
Firstly, there’s a perception among analysts that demand for short-haul will be stronger, in relative terms, than demand for long-haul journeys.
That’s based on a continued resilient economy in Europe and the fact that leisure travel has cemented itself as a staple among consumers since the pandemic.
The same optimism isn’t present for long-haul travel. Of course, IAG isn’t solely focused on longer travel — in fact, short-haul is a huge part of the business.
Nonetheless, long haul-travel does tend to be more disrupted by regional conflict, like those we’re seeing in Ukraine, Gaza, Yemen, and potentially the wider Middle East.
Good value
Analysts forecasts for earnings per share have recently been lifted from ¢37 to ¢38. And that’s a positive sign, suggesting an improving outlook.
| 2023 | 2024 | 2025 | |
| EPS (¢) | 46 | 38 | 43 |
The issue is, investors want to see growth, not sideways or backward movement. By comparison, Ryanair and easyJet are expected to report surging earnings in the next couple of years.
Of course, we may see an improving environment still as fuel prices are key in the aviation sector. Fuel represents 25% of total costs — IAG has hedged 65% in Q4 2023, 58% in Q1 2024, 49% in Q2 2024, and 39% in Q3 2024.
The thing is, IAG now looks phenomenally cheap on near-term metrics. It’s trading at just 3.4 times forward earnings, compared to Ryanair at 13.4 times forward earnings.
The issue is that IAG isn’t growing and isn’t paying a dividend. It’s also much more indebted than peers, including debt-free easyJet.
I own IAG shares, but I’m not buying more for now.
