A week ago, £1,000 bought 224 shares in British Airways owner International Consolidated Airlines (LSE: IAG), ignoring trading commissions. Today however, that same £1,000 buys 264 shares as the airline operator’s share price has fallen 16%.
Is this a good deal? Let’s discuss.
Solid 2025 results and a dividend hike
IAG’s recent full-year results for 2025, posted last Friday (27 February), were solid. For the year, revenue came in at €33.2bn, up 3.5% year on year. Meanwhile, operating profit before exceptional items rose 13.1% to €5.0bn and adjusted earnings per share grew 22.4% to 69.5 euro cents.
On the back of this performance, the company hiked its dividend by 9% (the yield is about 2%). It also announced it would return €1.5bn in excess capital to shareholders over the next 12 months, starting with a buyback of €500m.
Note that taking that earnings per share figure of 69.5 euro cents, we get a trailing price-to-earnings (P/E) ratio of just over six. So at first glance, the stock now looks very cheap.
The new landscape
Of course, this is all backward looking. And since the results, a lot has changed. All of a sudden, there is a shocking level of conflict in the Middle East. This is likely to have a major impact on airlines that fly to countries in the region.
Currently, BA has suspended all flights to Dubai, Tel Aviv, Doha, Abu Dhabi, Amman, and Bahrain until further notice. So we’re looking at a huge level of disruption.
We don’t know how long the conflict will last – it could be days, it could be months. However, we can be sure that it’s likely to have an impact on IAG’s earnings (the ‘E’ in the P/E ratio) this year, whether through refunds, cancellations, or just travellers deciding not to take that trip to Dubai they were thinking of.
Oil price carnage
It’s worth pointing out that there’s another issue for IAG here and that’s oil prices. They have spiked as a result of the conflict due to concerns over supply.
At present, Brent crude oil’s trading at $84 versus $71 a week ago. Airlines operators like IAG tend to have fuel hedges in place to mitigate the risk of oil price moves like this. However, if oil was to stay elevated for a while, IAG’s profits could be further impacted.
Another huge risk
Looking beyond the geopolitical instability, one other issue that I feel is worth mentioning is AI-related layoffs. These are not an issue for IAG today, however if they continue, consumer spending may drop sharply at some stage.
This could hit the airline industry. After all, in most cases travel is a discretionary expense.
Worth it?
So going back to my question at the top – are 264 IAG shares for £1,000 worth it? Well, they could be. If an investor believes they’ll rebound once the geopolitical carnage dies down, they could be worth a look as an opportunistic play. They do look cheap right now.
Personally though, I feel there are better stocks in the market to consider at present. Looking across the market, I see stocks that aren’t only safer but also have more long-term potential.
