The IAG (LSE: IAG) share price has soared over the last year, rocketing 110%. In contrast to this, easyJet (LSE: EZJ) shares have slumped 6%. The performance gap continues. Over the last month, IAG is up another 7%, while easyJet is down 12%.
This divergence raises an intriguing question. Can IAG maintain its momentum, or is easyJet now the better recovery play?
Both airlines are benefitting from a post-pandemic travel resurgence. However, IAG has raced ahead, which I put down to its premium offering, robust demand for long-haul flights and stronger transatlantic business. It also has greater pricing power due to its flagship brand, British Airways, and its ownership of Iberia and Aer Lingus.
One FTSE 100 airline is flying, the other is grounded
Meanwhile, easyJet has faced cost pressures, including fuel prices, wages and air traffic control issues. As a budget carrier, it struggles to pass higher costs to customers without denting demand.
Another key difference is financial resilience. IAG has higher operating margins of 13%, nearly double easyJet’s 7%, indicating superior efficiency. Yet despite their markedly different performance, both companies look relatively cheap.
IAG’s price-to-earnings (P/E) ratio is just 7.6, roughly half the FTSE average. EasyJet also looks cheap, trading on a multiple of eight times earnings. However, IAG’s stronger margins and momentum make its lower P/E look like more of an opportunity.
There’s one big issue though. IAG still has net debt of around €6bn. It’s steadily whittling that down but it remains a burden. By contrast, easyJet has a net cash position of £181m, giving it more of a safety net and greater flexibility to invest in its offering.
Neither stock is a strong income play. easyJet’s trailing dividend yield of 2.4% beats IAG’s 0.77%. However, IAG is restoring dividends rapidly, with a forecast yield of 2% this year, narrowing the gap with easyJet’s predicted 2.9%.
Both value stocks have their charms
Despite recent underperformance, easyJet’s shares have plenty of scope to recover. The airline is expanding its holiday business, providing more stable revenue streams. It also has a strong brand and could benefit if European consumer confidence lifts.
If easyJet can improve its cost control and benefit from ongoing travel demand, its shares could take off. The budget airline sector remains highly competitive, but easyJet’s balance sheet strength gives it some breathing space.
Meanwhile, IAG continues to benefit from high-margin business travel and transatlantic demand, positioning it well for future growth. With the airline industry in recovery mode, both stocks could fly.
I’m a little nervous about buying easyJet. I almost took the plunge last summer but given subsequent share price volatility, I’m glad I resisted. Momentum is a powerful force, and right now, IAG has it. While I wouldn’t expect the shares to double in value this year too, there may be more to come. Of the two, I think IAG appears the stronger pick for investors to consider today.
