International Consolidated Airlines (LSE:IAG) reported what analysts called “a blockbuster” full-year results — yet its share price is firmly in the red right now.
Is this daily decline just down to investors taking profits after recent share price strength? It is possible. Or is there something worse going on? Let’s take a look.
Image source: International Airline Group
Record the numbers
Despite pressure on consumers in many markets, the broader travel industry continued to defy gravity last year. IAG’s brilliant results announcement today serves as a useful measure of the airline industry’s resilience.
Income in FTSE 100 the company rose 3.5% between January and December to €31.2bn. It has fostered strong demand for its premium services, which has helped offset some weaknesses in its economic offering.
Operating margin increased by 130%, to 13.1%, helped by an 11% decrease in fuel costs. Operating profit increased by 17.3% from 2024 levels, to a record €5bn.
This performance also heralded a strong improvement in IAG’s balance sheet. Free cash flow fell by €500m year-on-year, but was still strong at €3.1bn. This helped the company reduce its total debt to €5.9bn as of December, down from €7.5bn last year.
As a result, IAG announced plans to buy back €1.5bn worth of its shares by 2026. It increased last year’s total dividend by 8.9%, to 0.098 euro cents per share.
A bright idea
The question is, can this group continue to grow? The company itself is confident, predicting “rincome growth and income growth at higher rates” and “significant free cash flow leading to a strong balance sheet.” However as I say, IAG’s share price has fallen following today’s announcement.
It is fair to say that profit taking may be responsible to some extent. But that’s not the whole story, as today’s release also reveals that cracks are starting to appear. Sales growth slowed to low double digits last year, and in Q4 the top line actually contracted 0.8% year-over-year as cargo and passenger revenue both declined.
As economic uncertainty grows, and the cost of living crisis lingers in key markets, it is possible that IAG may struggle to replicate last year’s strong results. However, it is not the only major risk it faces, as rising oil prices threaten to drive up fuel costs as tensions between the US and Iran escalate.
The need for important transatlantic routes may decrease as the US tightens border controls, and the current political climate damages America’s image abroad.
Can IAG shares be bought?
With its strong brand strength, IAG is well-placed to navigate the broader industry downturn. The delivery of a new high-powered aircraft would also help. But it’s not completely immune to sluggish market conditions, as those Q4 numbers show.
So should investors consider buying IAG shares today? Maybe, but I don’t buy them for my portfolio. I found some less risky stocks to buy right now.
