UPDATE: Investors in International Consolidated Airlines Group (IAG) have just witnessed a remarkable surge, with shares climbing by 23% over the past six months. A £10,000 investment made six months ago is now valued at approximately £12,300, before any dividends, reflecting a robust recovery in passenger demand and improved profitability.
This surge is particularly significant as it indicates a strong rebound in the airline industry, driven by favorable fuel prices and a steep rise in revenues from €23 billion in 2022 to over €33 billion on a trailing basis. However, the pressing question for investors is whether IAG still presents a lucrative opportunity or if the market has already priced in the positive developments.
Currently trading above 400p per share, IAG has moved from its low valuations during the pandemic, when shares hovered near 100p. The airline sector, known for its cyclical nature, is undergoing a significant transformation. With normalized earnings per share projected to rise from €0.7 in 2024 to €0.73 by 2026, IAG’s shares trade at around seven times forward earnings, suggesting reasonable value amidst anticipated earnings growth of over 23% in 2025.
Nevertheless, risks remain prevalent, including volatile fuel prices and potential geopolitical disruptions. Investors are reminded that growth in the airline sector is seldom linear, making it essential to consider the structural factors that influence travel demand.
In contrast, Jet2 (LSE:JET2), although AIM-listed, is emerging as a potential alternative investment. With a trading ratio of 6.8 times forward earnings, Jet2 boasts a strong balance sheet with around £800 million in net cash—22% of its market cap—compared to IAG’s nearly £5 billion in net debt, which constitutes approximately 27% of its market cap. Adjusting the price-to-earnings (P/E) ratio for cash and debt reveals Jet2’s valuation to be around five times, while IAG’s is closer to nine times.
As Jet2 embarks on a prudent fleet renewal program aimed at reducing costs by £10 per seat, it offers a promising outlook. However, both airlines face similar risks, particularly regarding rising fuel prices and increasing operational costs.
In summary, while IAG’s recent performance is impressive, investors must weigh their options carefully. Will IAG maintain its upward trajectory, or is it time to consider alternatives like Jet2? As market conditions evolve, now is the moment to stay informed and vigilant about these developments.
Stay tuned for further updates as this story unfolds, and consider how these insights might impact your investment strategy in the airline sector.
