International Consolidated Airlines Group (LSE: IAG) shares are right on the front line of Donald Trump’s global tariff war. Where else would they be?
Running an airline is one of the most exposed businesses on Earth. The pandemic showed just how quickly the skies can empty. Fixed costs like aircraft leases, maintenance and thousands of staff don’t disappear when planes are grounded.
Even in normal times, disruption lurks around every corner. Geopolitical shocks, local conflicts, economic crunches, natural disasters, and even faulty electrics (remember the recent Heathrow substation fire) can all ground operations. And I haven’t even mentioned air traffic control strikes. This isn’t a sector to enter lightly.
International Consolidated Airlines Group, known as IAG, only survived the pandemic by taking on huge debts.
Even once planes took off again, the share price struggled to lift, trading for ages at just three or four times earnings. I watched, tempted, but wary. Then the price doubled last year, and left me behind.
Right place, right time
When Trump dropped his ‘Liberation Day’ tariff bombshell on 2 April, IAG shares were pummelled again. With transatlantic routes such a crucial earner for the group, the market panicked. By 7 April, the stock had crashed to 224p, a full 26% below its January opening level.
I didn’t catch the bottom, but I got in just three days later at 259p. Today, the shares sit at 325p, giving me a lightning-fast return of 25%.
If somebody had invested £10,000 at the 7 April low, they’d be sitting on a 45% gain. Their stake would be worth £14,500 today. It’s almost impossible to catch the very bottom of any stock.
Growth prospects
I’m delighted to have got off to a flying start but it won’t always be this smooth. This isn’t a short-term trade for me. I invest to buy and hold for the long term. But that low 259p entry gives me a welcome cushion if turbulence returns.
Q1 results, published on 9 May, landed well. Revenue climbed 9.6% and operating profit rose €130m to €198m, despite cost pressures. IAG’s operating margin widened to 2.8%, helped by softer fuel prices and steady bookings.
British Airways delivered a solid performance, and Iberia and Vueling continued to lead the punctuality league tables.
Demand for premium cabins has stayed resilient even with economic clouds gathering. Net debt’s falling and a €1bn share buyback is under way.
Still, airlines always carry risk. War, recession, natural events. They’re all out there.
Cruising for now
The 25 analysts serving up one-year share price forecasts have produced a median target of just over 380p. If correct, that’s a solid increase of another 17% from today. I don’t take forecasts too seriously, but that one’s comforting. Out of 26 analysts giving stock ratings, 18 rate it a Strong Buy. Just one says Sell.
With the shares trading at a price-to-earnings ratio of 6.85, I think investors might still consider buying today. But a word of warning: the skies won’t always be this clear.
