Investors who boarded the International Consolidated Airlines Group (LSE: IAG) flight early have been handsomely rewarded. The British Airways and Iberia parent has seen its share price climb 126% in the past 12 months and an impressive 175% over five years.
That’s the sort of run that might leave many latecomers feeling like they’ve missed the plane. But does the stock still offer value at these levels?
Profit Climbs, Booming Iberia
The first half of 2025 was a bumper one for IAG. Revenue rose 8% to €15.9bn, while profit after tax soared 44% to €1.3bn. The group also chopped its net debt by over a quarter to €5.5bn, strengthening its balance sheet at a time when many airlines are still licking their wounds from the pandemic era.
Operational metrics were equally solid. Available seat kilometres (ASK) – a key measure of airline capacity – rose 2.7%, and revenue per ASK was up 2.9%. This shows IAG isn’t just flying more, it’s squeezing more money out of every kilometre flown.
The company’s Iberia division continues to be the standout performer. The Madrid-based airline swung from a €351m operating loss in 2012 to €1bn in profit in 2024. It now contributes nearly a quarter of group profits, and its punctuality rate hit a European-leading 82% last year.
Iberia plans to ramp up long-haul capacity to Latin America, its strongest market, where demand is expected to grow 5% annually through to 2033. It’s also eyeing an operating margin of up to 15% by 2030, up from 13.6% last year.
All this makes IAG one of the most operationally efficient players in the sector – not a claim many legacy airlines can make.
But what about valuation?
Despite the rally, IAG still looks attractively priced.
Its forward price-to-earnings (P/E) ratio sits at just 6.4, below the industry average of 7.4. That includes peers like easyJet (8.9), Jet2 (7.4), and Singapore Airlines (7.4). Only Wizz Air trades on a lower multiple (5.9), but that comes with its own set of growth concerns.
A discounted cash flow model suggests IAG’s shares could be worth £8.67 – a full 57% above their current price around £3.70. Analysts at Peel Hunt and Deutsche Bank are more conservative but still bullish, with price targets of 420p and 385p respectively.
If these projections prove correct, the shares could still have plenty of altitude left.
Risks still linger in the skies
Still, airline investing is never turbulence-free. High fixed costs, commodity price exposure, and the ever-present risk of a demand slump make the sector notoriously cyclical.
IAG’s exposure to long-haul routes makes it vulnerable to economic shocks and geopolitical flare-ups. A spike in oil prices or another round of global travel restrictions could quickly eat into margins.
And while the group has reintroduced a dividend – its first full-year payout since 2019 – it remains modest, with a six euro cent distribution planned for 2025.
The loyalty programme shake-up at British Airways also rattled some frequent flyers. Whether the revamped scheme attracts more high-value travellers or drives them away remains to be seen.
Bottom Line
IAG is flying high for good reason. The business is executing well, its financials are strong, and Iberia’s impressive recovery remains overlooked. Despite the strong share price performance, the valuation still looks undemanding.
I wouldn’t call this a risk-free investment, no airline ever is. But for investors comfortable with economic cyclicality and willing to buckle in, IAG could still have clear skies ahead.