BA owner IAG records record profit with premium offering
The pandemic's impact is fading, and International Consolidated Airlines Group SA (LSE:IAG) is bouncing back, achieving record operating profits as it nears its pre-pandemic success.
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Despite a challenging third quarter, marked by government shutdowns, trade wars, and the UK Budget, IAG's annual revenues soared by 8.5% to €33.2 billion (£29.1 billion), with operating profit skyrocketing by 13.1% to a record €5 billion. Operating margin improved from 13.8% to 15.1%, with Iberia and British Airways contributing 16.2% and 15.2%, respectively. Return on Invested Capital (ROIC) also grew to 18.5%, up from 17.3% in the previous year.
Net debt, a lingering pandemic legacy, has been significantly reduced to €6 billion from €7.52 billion at the end of 2024, enabling a 2.1% dividend yield and a €1.5 billion share buyback program, showcasing management's confidence in future growth.
IAG's asset-light businesses, such as Iberia's maintenance, repair, and overhaul services, BA Holidays, and the IAG Loyalty scheme, are generating substantial revenue. The combination of BA Holidays and IAG Loyalty has created the third-largest company in its field, bolstered by partnerships with American Express.
British Airways, the group's star performer, excels in the premium cabin market, especially in the North Atlantic, accounting for 30% of capacity. Flight frequencies to key destinations are increasing, and IAG aims to maximize income from both premium offerings and an affluent customer base.
Latin America and Europe remain stable, while Asia Pacific is gaining momentum with the addition of Bangkok, Kuala Lumpur, and Tokyo, addressing competitive disadvantages with Chinese carriers. However, fierce competition and economic pressures persist as potential challenges.
Despite these risks, IAG's recovery from the pandemic's impact is nearly complete, with shares surpassing 2018 highs. Investors who bought in during the downturn have been rewarded, with a 40% price increase in the last year, outpacing the FTSE100's 24% gain. IAG's strong bookings for the current quarter and ambitious medium-term targets suggest continued growth, maintaining its status as a strong buy in the market.
