Lots to like about this FTSE 100 high-flyer

Keith Bowman, equity analyst at interactive investor, is encouraged by prospects for this blue-chip in 2020.

[Filmed 19th December 2019]

International Consolidated Airlines Group (LSE:IAG), IAG, is one of the world's largest airlines companies. Its brands include; British Airways, Air Lingus, Spanish airline Iberia, and low-cost operator Vueling.

It operates over 570 aircraft flying to more than 260 destinations and carrying around 130 million passengers each year. IAG is a Spanish registered company who shares trade on both the London and Spanish stock exchanges.

Investors in any airline company must be prepared for an often turbulent ride, volatile fuel costs, the threat of terrorism, and even volcanic ash clouds, are among the many potential hurdles which management can find themselves having to navigate. 

For IAG, a strike by its pilots over pay provided the latest obstacle. But a recent settlement of the dispute with pilots being met with only half of their pay demands underlines management's continued focus on costs.

The €1 billion acquisition of Latin America-focused Spanish airline Air Europa back in the autumn at what was considered to be a bargain price, also appears to reinforce management's prudent cost control. Bringing Air Europa under its wing will see IAG's market share for travel between Europe and Latin America leapfrog Air France-KLM (EURONEXT:AF), to a leading 26%.

IAG's successful track record of squeezing costs and integrating previous acquisitions such as Iberia, British Midlands and Air Lingus, all bode well. And a large conservative government majority could also make decisions on airport expansion a lot easier.

Despite an 18% bounce in the share price since late October [to 19th December 2019], the shares still only trade on a forward price/earnings ratio of seven, broadly in line with rivals such as Air France and United Continental, but below low-cost operators such as easyJet (LSE:EZJ) and Ryanair (LSE:RYA).

A forward dividend yield of 4% covered more than three times by earnings also looks attractive in the current ultra-low interest rate environment. In all, while stressing the volatility and high-risk appetite required to invest in the airline sector, we believe IAG shares offer encouraging prospects.