International Consolidated Airlines Group (LSE:IAG) shares have soared 69% since 3 April. The FTSE 100-listed aviation giant — owner of British Airways, Iberia, Aer Lingus, and Vueling — has staged a remarkable recovery as investors increasingly buy into its earnings recovery, operational discipline, and leaner balance sheet.
Much of the re-rating took place ahead of the group’s half-year results on 1 August, but the numbers helped confirm the trajectory. In H1, revenue rose 8% year on year to €15.91bn, while operating profit before exceptional items jumped 43.5% to €1.88bn. Adjusted earnings per share rose by nearly 70%.
Margins expanded to 11.8%, up 2.9%. This was supported by ongoing cost transformation and favourable fuel prices. Performance was strong across the group, with Iberia benefiting from higher unit revenue and a better mix. However, Vueling did face some pressure from softer intra-Europe demand.
The biggest benefit was simply falling oil prices and improving optimism around US trade policy.
Encouraging forecast, but everything’s relative
Encouragingly, the balance sheet — one of its relative weaknesses versus my sector favourite Jet2 — is set to improve. Net debt now stands at €5.46bn, down sharply from pandemic-era levels. Leverage has fallen to just 0.7 times EBITDA (earnings before interest, tax, depreciation, and amortisation), giving the group far more financial flexibility than in recent years.
Moving forward, analysts see net debt falling to €3.1bn by 2027. That’s obviously not a net cash position like Jet2, but it’s an improvement. And it’s definitely manageable for company with a market cap around £18bn.
Despite the strong share price performance, the valuation remains reasonable. The stock trades on just 6.7 times expected earnings for 2025, falling to 6.2 times in 2026 and 5.8 times in 2027. That places it well below the FTSE 100 average, but its net debt position does mean it’s more expensive than some of its European airline peers.
For comparison, Jet2 trades at 7.7 times forward earnings, falling to 6.3 times in 2027. But its enterprise value-to-EBITDA ratio (which accounts for net debt/cash) is just 1.49 times falling to one in 2027. International Consolidated Airlines, meanwhile, is at 3.7 times falling to 2.9 times.
On dividends, the company has recently reinstated payments following the period of pandemic disruption. The projected yield is 2.5% in 2025, rising to 2.87% by 2027. With a payout ratio of just 16%-17%, there appears to be room to grow the dividend as profits continue to improve.
The bottom line
There’s a lot to like about International Consolidated Airlines. In addition to having operational strength, with free cash flow yields expected to reach 15.4% in 2025, it’s more diversified than most of its peers. After all, it operates several brands in several different market segments and in a wide variety of geographies.
Risks, however, remain. Geopolitical tensions and fuel price volatility can both affect operating margins, and low-cost operations such as Vueling remain exposed to macroeconomic softness in continental Europe.
That said, the group’s core transatlantic and long-haul segments remain resilient. With leverage falling, margins rising, and the stock still trading at low multiples, it may gain further in the medium term.
I do believe International Consolidated Airlines is worth considering, however, I’m personally favouring Jet2 and cheaper airlines. The valuations are simply more appealing.
