IAG shares tipped to reach pre-Covid prices

Details of Iberia’s flight path to 40% profit growth by 2030 today ensured the shares of its owner International Consolidated Airlines Group SA (LSE:IAG) retained strong support in City circles.

Following a presentation in Madrid on Tuesday outlining Iberia’s positive outlook, broker Peel Hunt reiterated a Buy rating with a price target of 420p, a level not seen since February 2020, and Deutsche Bank highlighted 385p.

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This compares with last night’s close of 319.8p, when shares in the British Airways and Aer Lingus owner posted the second-best rise in the FTSE 100 index as investors got their first full chance to react to the ambitions of Europe’s leading Latin American airline.

IAG shares have surged from last June’s 160p thanks to a dominant performance across long-haul routes, as well as sector-leading margins and the impact of lower fuel costs.

Shareholders will soon receive their first full-year dividend since 2019 with the distribution of six euro cents from 30 June, part of a total payment of 435 million euros for 2024.

Iberia has played a significant role in the recent success, having swung from an operating loss of 351 million euros in IAG’s first year of ownership in 2012 to a profit of one billion euros in 2024. During that time punctuality has improved from 62% to last year’s Europe-leading 82%.

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The Madrid-based carrier, which has a fleet of 112 planes, now accounts for 23% of IAG’s profit compared with 15% in 2019 and 4% in 2014.

This week’s presentation set out a medium-term ambition to achieve an operating profit of 1.4 billion euros, which is based on the delivery of a margin between 13.5% and 15%. This compares with 13.6% in 2024 and 8.8% in the year before Covid.

Deutsche Bank said the “impressive” turnaround of the airline has been built on leadership positions in its four core markets covering Latin America and the Caribbean, North America and the Madrid routes to Europe and the Spanish islands.

It said Iberia boasted a long-haul premium economy offering that competitors lacked, while low unit costs have been supported by staff being on well-structured performance-related pay.

The bank also noted the airline’s record of punctuality and customer satisfaction and the rapid return to flying post Covid.

Iberia’s medium-term plan disclosed this week shows compound annual growth of 3-5% in available seat kilometres and an increase in the number of long-haul aircraft to 70 from 45.

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Capacity growth is set to be focused on Latin America as Iberia looks to meet forecasts of 5% compound annual demand growth over 2024-33.

Latin America represents 52% of Iberia’s network capacity and offers additional resilience through a high proportion of visiting friends and relatives traffic.

Peel Hunt said: “We believe the target profit growth is attainable, and could even be exceeded given industry capacity constraints, and that Iberia’s high-quality business deserves a higher rating.”