IAG is the ace of the air on the European stock market: it rises almost 80% compared to the 20% that the sector lost in the year

IAG rises on the stock market in the year by 78% without rival within the Ibex 35. But it is also the ace of the air compared to the rest of European airlines, since the sector declines by 21% on average in the same period. The good performance of the business, the recovery of the dividend and the high market expectations for the airline’s results for this year and next place IAG as one of the favorites of the market consensus that still considers that it has a way to reach 3 .33 euros per share.

The market consensus collected by FactSet establishes a target price of 3.33 euros, which implies a potential of 3%. However, expert valuations have risen almost as much as the company’s own stock on the stock market, as analysis firms have pursued IAG more when establishing their benchmarks than against it. With these levels, the Spanish-British airline is getting closer to recovering the levels at which it was trading before the outbreak of the pandemic, at 5.22 euros per share, although it is still an additional increase of 60% remains to surpass this milestone.

To date, IAG has been one of those that has recovered best from the coronavirus crisis with one of the best ratios of net financial debt to its gross operating profit in the sector. On the opposite side is AirFrance-KLM, where experts see greater risk due to its high debt. The action of the company falls more than 45% this year and is trading this Tuesday at historic lows, below 7.3 euros. It is not the best of years for Ryanair either, which is trading at almost the same price at which it began the year.

The operating expenses of airlines in the eurozone have been rising in recent years and not all have managed to pass this increase in prices on to the consumer with the same ease. Analyst firms expect IAG’s operating profit to reach 4,000 million euros at the end of 202415% more than last year due to the airline’s ability to maintain prices with rising demand, mainly thanks to leisure and tourism. And next year it will reach 4.2 billion, based on the same forecasts. “We believe that the market is being conservative in the expected profit next year. We see potential for improvement due to the evolution of operating expenses and their ability to reinvest in the business,” commented JP Morgan analyst Harry J. Gowers, who raises the expected ebit at IAG for 2025 to 4,514 million euros.

One of the advantages that airlines have had in 2024, and that has benefited companies like IAG the most, has been the drop in fuel prices. Airlines provide coverage for protect yourself from oil price volatilitybut this year it has been the uninsured percentage that has given the airlines more margin, as a general rule.

He quoted crude oil falls 5.7% in the year, with the Brent at 72.6 euros per barrel, while the price of jet Fuel oil falls 26% to 721.3 dollars per ton at the end of November. “Fuel constitutes a significant portion of airline unit costs (often between 20% and 40% and usually on the higher end for low-cost airlines), so prices could offset other cost increases during the first half of 2025,” commented the analyst BloombergConroy Gaynor.

As the European air companies presented their quarterly results, analysis firms have raised their profit estimates for the year as a whole due to this cost cutting. As an example, the market consensus collected by FactSet considered at the beginning of 2024 that the profit per kilometer traveled and seat available at IAG would be 8.25 euros, below the previous year. Today it is expected that close the current year at 9.21 euros which implies 11.6% more than initially expected.

With these expectations, IAG would be the second European airline with the highest profit per seat and kilometer traveled on the European stock market, only behind AirFrance-KLM, although the latter would not increase this ratio in year-on-year terms. On the other hand, it would be IAG, the one that would close 2024 with the highest profitability compared to that of its peers and that would even surpass the low cost. Compared to Ryanair’s operating margin, which will not reach 12% this year, according to the average of analysis firms, IAG will beat it to almost 14.5%. Behind them would be AirFrance-KLM, Lufthansa, easyJet and Norwegian Air Shuttle with returns on their income around 5%.

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