Is it time to sell this FTSE 100 high-flyer?
The shares have been among the best performing in the FTSE 100, but with storm clouds on the horizon a City firm is taking a more cautious approach.
6th August 2025 15:48
by Graeme Evans from interactive investor
A Sell recommendation on International Consolidated Airlines Group SA (LSE:IAG) today highlighted four reasons why the current valuation may be as “good as it gets” for the British Airways and Iberia owner.
City bank UBS continues to regard IAG as the best of the European long-haul operators but said that risks were now skewed to the downside after a strong run for shares since April.
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The bank’s downgrade follows Friday’s strong second-quarter results, when operating profit jumped by a bigger-than-expected 35.4% to 1.68 billion euros (£1.45 billion).
IAG shares initially hit a post-pandemic high of 388.5p before settling back at this afternoon’s 375p, still more than double their level of a year ago and up 24% year-to-date.
Other City firms remain supportive of the carrier after Peel Hunt reiterated its Buy rating and 420p target and Deutsche Bank highlighted a best value estimate of 460p.
UBS is at 350p, despite upgrading its earnings forecasts for the next two years by up to 22%.
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The changes left it in line with the rest of the City in terms of 2025 but 8% below 2026’s consensus, which is for earnings momentum to slow to a mid-single digit level.
The prospect that 2025 will be better than 2026 underpins today’s downgrade, alongside concerns over North Atlantic yield pressure, UK economic headwinds and the potential demand impact of recent changes in the Avios loyalty programme.
The bank sees the UK backdrop and IAG’s performance on North Atlantic routes, which represent about 30% of capacity deployment and are material to profitability, as the greatest near-term risk.
The group last week described demand in its core markets of Europe, Latin America and North Atlantic as robust, although it did highlight some softness in US point-of-sale economy leisure.
UBS says that it is cautious about whether IAG’s North Atlantic yield progression will hold, noting the potential impact of recent economic and geopolitical events and weaker performances by some airlines including Delta Air Lines Inc (NYSE:DAL) and Deutsche Lufthansa AG (XETRA:LHA).
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It added that IAG’s passenger revenue per available seat km metric slowed to 0.6% from 13% in the first quarter, although some of this was due to calendar effects.
In addition, the bank warns that the UK’s fiscal environment is deteriorating: “We expect the Autumn Budget to introduce further taxation, which could dampen premium travel demand.”
Meanwhile, UBS is monitoring for signs that April’s relaunch of the Avios customer loyalty scheme has caused a shift in behaviour among premium travellers.
It admits its concerns are currently without evidence after IAG said 17% more Avios were issued in the first half of 2025 compared to 2024 and that 15% more Avios were redeemed in the same period.
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