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IAG: big Q1 profit beat, guidance reiterated

IAG delivered a big beat on the profit line as consumer demand holds up well in the first quarter.
IAG share research.jpg

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IAG’s first-quarter revenue rose 9.6% to €7.0bn (€6.8bn expected), with growth being driven by higher ticket prices and increased capacity.

Operating profit nearly tripled to €198mn (€133mn expected). The uplift was driven by higher revenue and lower fuel costs, which more than offset other rising operational costs.

Net debt moved €1.4bn lower to €6.1bn, helped by increased cash generation.

Full-year guidance remains unchanged, with further operating profit growth expected (market consensus: 4% decline to €4.6bn). Capacity is expected to increase by around 3%.

The group completed €530mn of the ongoing €1.0bn share buyback programme in the quarter.

The shares rose 1.3% in early trading.

Our view

British Airways owner IAG had a good start to the year, beating profit expectations by a hefty margin. Despite the impressive performance, management still thinks it’s too early to start nudging up full-year guidance, leading to a muted response from markets on the day.

IAG’s market-leading networks, strong brands, and fierce operational focus continue to drive performance skyward. Tariffs had been weighing on the travel sector, given their potential to increase aircraft prices and cause a global economic slowdown. But for now, near-term demand remains strong, with around 80% of seats for the second quarter already booked up.

The longer-term demand picture is looking good too. IAG has just placed orders for 53 new Airbus and Boeing aircraft to be delivered between 2028 and 2033, highlighting the group’s growth ambitions and confidence in the future of the travel industry.

Given the high fixed costs associated with flying planes, squeezing more passengers onto each flight is key to increasing profitability. Easing fuel costs have also helped the bottom line. But keep in mind that external shocks could send fuel prices higher again. That risk looks well hedged in the short term, but the group will always be at the mercy of external factors.

With its London base, IAG enjoys a larger share of premium passengers than most airlines, as the capital serves as the world’s leading hub for premium air travel. These high-value customers are willing to pay more for a better seat, which is helping to improve profitability.

That’s resulting in healthy free cash flows, strengthening the balance sheet. There’s also plenty of cash left over to hand to shareholders through both dividend payments and share buybacks. As always though, shareholder returns are never guaranteed.

There are some things to keep in mind, though. While pent-up travel demand still has room to run, it can't go on forever. IAG’s also investing heavily in the business. This includes expanding its fleet, upgrading its digital infrastructure and leveraging data in a bid to improve the customer experience. While we support the strategy, if these investments fail to deliver the required return, sentiment may sour.

IAG’s expecting further profit growth this year, while markets are a bit more pessimistic, expecting a 4% decline. But with strong demand and lower fuel costs, we see upside to current market forecasts. The valuation looks attractive relative to the long-term average on an EV/EBITDA basis (a measurement of company worth relative to its cash profits). But the cyclical nature of the industry, as well as the sensitivity of demand to macro-events, shouldn’t be overlooked. Ups and downs along the way can’t be ruled out.

Environmental, social and governance (ESG) risk

The transport industry is medium risk in terms of ESG, with European firms managing them better than others. Carbon emissions, product governance, and quality & safety are the biggest risk drivers. Other key areas are emissions, effluents & waste, labour relations, and employee health & safety.

According to Sustainalytics, IAG’s management of ESG risk is strong.

The group has sustainability, environmental and social programmes integrated into its core business strategies. Executive compensation is also linked to ESG performance targets. However, its disclosures and reporting of ESG issues falls short of best practice.

IAG key facts

All ratios are sourced from LSEG Datastream, based on previous day’s closing values. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn’t be looked at on their own – it’s important to understand the big picture.

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment.No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment.This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication.Non - independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place(including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing.Please see our full non - independent research disclosure for more information.
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Written by
Aarin Chiekrie
Aarin Chiekrie
Equity Analyst

Aarin is a member of the Equity Research team. Alongside our other analysts, he provides regular research and analysis on individual companies and wider sectors. Having a keen interest in global economics, he knows how macro-events can impact individual companies.

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Article history
Published: 9th May 2025