International Consolidated Airlines Group SA

International Consolidated Airlines Group SA (LSE: IAG) is an FTSE 100 index-listed European aviation conglomerate that operates flights under the British Airways, Iberia, Aer Lingus, and Vueling banners. Over the past period, the company transported 264 million travellers to 185 destinations worldwide. Its primary airport hubs are situated in London Heathrow, London Gatwick, Madrid, Barcelona, and Dublin. This Report covers the Key Recommendation Rationale, Conclusion, and Recommendation on the stock.

Key Recommendation Rationale – Sell at GBX 331.60

• Higher Non-Fuel Unit Costs: Non-fuel costs per available seat kilometre (ASK) increased by 8.8%, rising from €5.96 cents in Q1 FY24 to €6.48 cents in Q1 FY25. This was driven by adverse FX impacts (€104 million), higher supplier expenses, and pre-summer operational investments.

• Passenger Load Factor Decline: The Group’s overall passenger load factor dropped by 0.4 percentage points to 82.7% in Q1 FY25, with notable declines across Vueling (-2.7 pts) and British Airways (-1.2 pts), reflecting pressure on capacity utilization.

• Weak Performance in Europe and Domestic Segments: Passenger revenue per ASK in Europe and Domestic (Spain & UK) regions fell by 0.2% and 4.5% respectively. Both segments also witnessed lower load factors, indicating pricing or demand pressures in these key markets.

• Drop in Group Liquidity: Total liquidity decreased by €1,007 million, from €13,362 million at the end of FY24 to €12,355 million at the end of Q1 FY25. The reduction was mainly due to the expiry of a €350 million Aer Lingus facility and foreign exchange effects.

• Macroeconomic Risk: The market sentiments can remain weak in the short term due to the subdued consumer disposable income, geopolitical tensions, and political risks.

Valuation Methodology: Price/ Earnings Approach

Share Price Chart  

Conclusion

IAG may continue to trade at a discount, weighed down by elevated non-fuel unit costs, a 0.4 percentage point decline in overall passenger load factor to 82.7%, and underperformance in Europe and Domestic segments. Engineering and aircraft-related expenses rose sharply by 34.6% to €778 million in Q1 FY25, while total group liquidity declined. Broader structural challenges, including fiscal uncertainty and persistent inflation, are also expected to constrain near-term profitability. For conducting the valuation, the following peers have been considered: Wizz Air Holdings PLC (LSE: WIZZ), Mobico Group PLC (LSE: MCG), etc.

Given its current trading levels, the recent financial performance, strategic investments and partnerships, market expansion and cost optimization strategies, relative valuation, and associated risks, it is prudent to exit the stock at the current levels. Hence, a ‘Sell’ recommendation is given on the stock at the Closing Market Price of GBX 331.60 as of 19 May 2025. 

Note 1: Past performance is not a reliable indicator of future performance.

Note 2: The reference date for all price data, currency, technical indicators, support, and resistance levels is 19 May 2025. The reference data in this report has been partly sourced from REFINITIV.

Note 3: Investment decisions should be made depending on an individual's appetite for upside potential, risks, holding duration, and any previous holdings. An 'Exit' from the stock can be considered if the Target Price mentioned as per the Valuation and or the technical levels provided has been achieved and is subject to the factors discussed above.

Note 4: Target Price refers to a price level which the stock is expected to reach as per the relative valuation method and/or technical analysis taking into consideration both short-term and long-term scenario.

Note 5: ‘Kalkine reports are prepared based on the stock prices captured either from the London Stock Exchange (LSE) and or REFINITIV. Typically, both sources (LSE and or REFINITIV) may reflect stock prices with a delay which could be a lag of 15-20 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice.’

Note 6: Dividend Yield may vary as per the stock price movement.