Today, the long-term investing case for International Consolidated Airlines Group (LSE:IAG) shares is put under the microscope by two Fools with opposing stances…
Bullish: James Beard
After coming close to being wiped out by the pandemic, International Consolidated Airlines Group returned to profitability in 2022.
This year, the airline will have a seat capacity equivalent to 98% of its 2019 availability. Revenue per kilometre from both passengers and cargo is now higher than ever before. And it reported a load factor of 83.2% for the last quarter of 2022 (Q4 2019: 84.3%).
Last month, Heathrow passenger numbers were 48% higher than a year ago. For flights outside Europe, the increase was 59%. This points to a recovery in demand, particularly for long-haul travel, which is IAG’s most lucrative market.
The easing of jet fuel prices should also help improve profitability. But with 60% of fuel costs hedged for the next 12 months, the full benefit will not be immediately apparent.
With capacity and load factors close to pre-Covid levels, and higher ticket prices here to stay, I’m bullish that IAG’s stock will soon take off.
James Beard has no position in IAG.
Bearish: John Choong
By John Choong: International Consolidated Airlines Group shares have started the year well — up 18% and outperforming the FTSE 100. Nonetheless, it should go without saying that its performance has lagged many of its UK peers, such as easyJet and Wizz — and with reason, too.
Surging international travel demand, especially in Asia, and business travel are great for margins. However, the airline’s poor fundamentals could discount all its upwards momentum, with elevated oil prices in the near term more likely than not to hurt IAG’s bottom line.
What’s more, the acquisition of Air Europa may present further deterioration of its already delicate balance sheet. A veto from competition authorities could see IAG pay impairments on a failed deal. All of these aren’t ideal when its debt levels are already above its own market cap and liquidity.
And although its multiples may indicate decent value at these prices, I think further growth in IAG shares to higher levels may present more risks than reward.
| Metrics | IAG | Industry Average |
| P/S ratio | 0.4 | 0.8 |
| P/E ratio | 19.6 | 15.3 |
| FP/S ratio | 0.3 | 0.3 |
| FP/E ratio | 8.9 | 6.7 |
John Choong has positions in easyJet.
