IAG shares — or to give it its full name, International Consolidated Airlines Group (LSE: IAG) — were still struggling to shake off the their own version of long Covid at the start of 2024.
The pandemic was a disaster for airlines. IAG only made it through by loading up on debt. For a moment, the British Airways owner was on the edge.
Obviously, it survived. And when people started flying again, investors had a brilliant opportunity to buy its shares on the cheap – that I squandered.
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And I continued to squander the opportunity throughout 2024. It was a brilliant year for the IAG share price, which rocketed 98.6%. That made it the best performer on the entire FTSE 100 (a squeak ahead of Rolls-Royce).
Can this FTSE winner smash the index again?
If a brave investor had gambled an entire year’s £20,000 Stocks and Shares ISA contribution limit on IAG at the start of last year, they’d have £39,720 today.
In fact, they’d have slightly more. The board resumed dividends last year, and the trailing yield is 0.85%. So they’d have got another £170 or so on top, pushing my mythical investor’s total holding towards £40,000.
I’m torturing myself here. I didn’t put a single penny into IAG. The question is whether it’s too late to reverse that mistake.
Last year saw a resurgence in transatlantic travel, which boosted British Airways and helped offset European flight delays. BA’s margins hit 20%, despite a 14% rise in labour costs. Falling fuel prices helped.
Investors can expect more income in 2025, with the yield forecast to hit 2.96%. The board is also pursuing a €350m share buyback.
IAG still has a lot of work to do. It plans to invest £7bn to upgrade its cabins and in-flight services, which have come in for much criticism. British Airways also needs to work on its punctuality. Traffic control issues won’t help, and it can’t do much about them.
I’m still wary of buying this stock
IAG can’t do much about the oil price either, which as ever could go either way. It’s also struggling to increase fares, an issue dogging other airlines including Ryanair. Aer Lingus, which IAG also owns, has struggled amid a pilot strike and increased competition at Dublin Airport.
The group still owes around €6bn, which needs working down. I was pleased to see the board back out of a deal to buy a stake in Air Europa, Spain’s third-largest airline. I’d rather it reduced debt and returned cash to shareholders.
So should I buy IAG today? The shares do still look ridiculously cheap to me, trading at just 7.21 times trailing earnings.
Yet I don’t think we can expect a repeat of 2024’s stellar run. The 25 analysts offering one-year share price forecasts seem to agree with me. They have produced a median target of 326p. If correct, that’s a modest increase of just 9% from today (although forecasts are little more than educated guesses).
I feel like an airline passenger who’s turned up at the gate just after it’s closed. I’ve missed my flight and yes, I’m kicking myself. So it goes. Instead of buying last year’s big winner, I’ll look for a stock that’s ripe for a recovery in 2025. Happily, I can see plenty of brilliant opportunities on the FTSE 100 today.
