Travel’s an investment theme I’m quite bullish on. Since the pandemic, travel’s been a priority for consumers. And with cashed-up Baby Boomers retiring in droves, I think the long-term outlook for the industry is attractive. So could shares in British Airways owner International Consolidated Airlines Group (LSE: IAG) be a good way for me to play the theme? Let’s discuss.
IAG has momentum
IAG appears to have momentum. For the third quarter of 2024 (Q4 and full-year results are out later this week), revenue rose by 7.9% year on year while operating profit jumped by 15.4%.
“Demand remains strong across our airlines and we expect a good final quarter of 2024 financially,” said CEO Luis Gallego. This momentum’s encouraging.
What’s also encouraging is the momentum in the share price. Right now, IAG shares are in a strong uptrend. Over the last year, they’ve risen more than 100%. I prefer to buy shares that are rising over those that are falling as trends can last for a while.
The shares look cheap
Despite the substantial share price increase, the shares still look cheap. Currently, the consensus earnings per share forecast for 2025 is 61.8 euro cents. That puts the forward-looking price-to-earnings (P/E) ratio at just 6.4. For reference, American airline operator Delta Air Lines currently trades on a P/E ratio of 8.6
Dividends on offer
There are also dividends to consider. Currently, the forward-looking yield here’s about 3%. However, investors should note that IAG is a Spanish registered company. As a result, shareholders who aren’t resident in Spain for tax purposes are subject to the standard Spanish withholding tax. Also, dividends aren’t guaranteed and can be cancelled or reduced at any time.
Overall though, there are quite a few reasons to be bullish on IAG.
Questionable long-term investments
The thing is, I’m a long-term investor. And history shows that airlines often aren’t good investments over a long holding period. This industry is very capital intensive (meaning companies need to spend a lot of money to keep their businesses running). This isn’t great for profitability.
Meanwhile, there are a lot of things that can go wrong. Staff strikes, oil price increases, terrorist attacks, wars, and global pandemics are just a few examples. These factors are reflected in the long-term IAG share price chart.
Looking at the chart, we can see that the share price is below where it was a decade ago.
Better travel stocks to buy?
Given the capital intensive nature of the airline industry, and all the risks for airline operators, I think there are better ways I can play the travel theme. In my view, hotel operators (which often operate capital light franchise models), booking site operators, rideshare companies, and credit card companies could be better options for me from a long-term investment perspective.
