International Airlines Group Sees Share Surge

Shares in International Airlines Group (LON:ICAG) jumped over 5% on Friday following its third-quarter results, which surpassed analyst expectations on both sales and net profit.

The stronger-than-expected performance, largely attributed to cost efficiencies, has led to positive adjustments in the full-year forecasts for key metrics, including earnings and net profit.

Analysts at Jefferies have since raised their full-year consensus, forecasting:
– Sales to increase by around 1%
– Earnings Before Interest and Taxes (EBIT) by 7%
– Net profit by 6%

Despite some headwinds, such as lowered available seat kilometers (ASKs) growth due to engine supply issues, the impact was offset by favorable fuel cost guidance, driving a 7% upgrade to projected net profit for the year.

The ASK growth rate for 2024 has been revised slightly downward to 6%, from a previous forecast of 7%, yet there is minimal expected impact on the broader consensus for fiscal year 2025.

Jefferies analysts noted that IAG's decision to scale back less profitable routes amid engine constraints could help mitigate any negative impact on overall ASK levels.

The Q3 earnings reveal steady revenue growth across IAG’s core segments. Group sales reached €9.33 billion, beating the consensus estimate of €9.15 billion.

Adjusted EBIT stood at €2.01 billion, also above the consensus estimate of €1.76 billion. Net profit of €1.44 billion marked another solid beat, ahead of the €1.29 billion consensus.

“IAG has now delivered €3.82 billion of EBIT in the last 12 months, so we expect consensus EBIT expectations to firm from €3.69 billion in FY24E,” said analysts at RBC Capital Markets in a note.

Breaking down the revenue sources:
– Passenger revenue saw a 6.9% year-over-year increase, coming in just below expectations at €8.27 billion
– Cargo revenue reached €304 million, marking a 15.6% gain year-over-year

The overall load factor improved by one percentage point, standing at 89.9%, indicating high demand levels.

Looking ahead, analysts remain bullish on IAG, citing its strong balance sheet, which provides flexibility for potential acquisitions, dividend increases, or share buybacks.

The company’s cash flow remains strong, with a buyback program worth €350 million announced for the quarter.

Despite some rising non-fuel costs, IAG’s margins have exceeded pre-COVID levels, with further growth anticipated as long-haul travel continues to recover.

“We think IAG has a stronger outlook beyond FY24 than given credit for, due to pricing potential from BA product measures, and given scope for continued recovery in business travel,” RBC said.