International Consolidated Airlines (LSE:IAG) has reported what analysts have called “blockbuster” full-year results — yet its share price is firmly in the red right now. At 431.4p per share, the British Airways owner has slumped 6% on Friday (27 February).
Is this daily drop simply down to investors taking profits after recent share price strength? Possibly. Or is something more sinister going on? Let’s take a look.
Record numbers
Despite pressure on consumers in many markets, the broader travel sector continued to defy gravity last year. IAG’s brilliant results announcement today serves as a useful barometer for the resilience of the airline industry.
Revenues at the FTSE 100 firm rose 3.5% between January and December to €31.2bn. It was boosted by strong demand for its premium services, which helped offset some weakness in its economy offerings.
Operating margin increased 130 basis points, to 13.1%, helped by an 11% drop in fuel costs. Operating profit surged 17.3% from 2024 levels, to a record €5bn.
This performance also heralded a strong improvement in IAG’s balance sheet. Free cash flow dropped €500m year on year, but was still considerable at €3.1bn. This helped the company trim net debt to €5.9bn as of December, down from €7.5bn a year earlier.
As a result, IAG announced plans to buy back €1.5bn worth of its shares in 2026. It lifted the total dividend for last year by 8.9%, to €0.098 euro cents per share.
Bright outlook
The question is, can the group continue to thrive? The company itself is confident, predicting “revenue growth and earnings growth at high margins” and “significant free cash flow leading to a stronger balance sheet.” Yet as I say, IAG’s share price has dropped following today’s announcement.
It’s fair to say profit-taking may be responsible to some degree. But that’s not the whole story, with today’s release also revealing that cracks are starting to appear. Sales growth slowed to low single-digits last year, and in Q4 the top line actually contracted 0.8% year on year as cargo and passenger revenues both dropped.
With economic uncertainty growing, and a cost-of-living crisis enduring in key markets, it’s possible IAG could struggle to replicate last year’s strong results. However, that’s not the only significant danger it faces, with surging oil prices threatening to drive up fuel costs as tension between the US and Iran increases.
Demand on key transatlantic routes could also slip as the US tightens border controls, and the current political climate damages America’s image abroad.
Are IAG shares a potential buy?
With its strong brand power, IAG’s well placed to navigate a broader sector downturn. The delivery of new aircraft with higher premium capacity could also help it . But it’s not totally immune to weakening market conditions, as those Q4 numbers show.
So should investors consider buying IAG shares today? Possibly, but I’m not buying them for my own portfolio. I’ve found other less risky shares to buy right now.
