International Consolidated Airlines Group (LSE:IAG) was one of the biggest losers from the pandemic among FTSE 100 stocks. Indeed, at £1.50 today, the IAG share price remains anchored well below its pre-Covid levels when the stock traded comfortably above £4.
Nonetheless, an encouraging overall performance in 2023 suggests the aviation giant could be well on the route to recovery. An improving financial position and kinder macroeconomic conditions have lifted the stock higher and this trend could continue in the coming years.
Let’s take a closer look at IAG’s recent history and where the shares might go next.
From surviving…
Although the IAG share price delivered a healthy return last year, some analysts expected a stronger recovery from its pandemic lows.
A prolonged period of strict international travel restrictions inflicted a heavy toll on the business. The British Airways and Iberia owner had to take on a significant amount of debt just to survive.
In addition, high inflation rates and the cost-of-living crisis that followed the pandemic added further unwelcome challenges for the company.
At a little under £15bn, the group’s debt mountain is still double IAG’s market cap. This Covid debt legacy is likely to act as an ongoing risk for the firm as it strives to repair the balance sheet in the months and years ahead.
However, it looks like IAG has successfully endured these extremely tough conditions and the future looks brighter. The issue of the group’s survival isn’t questioned in the same way today as it was back in 2020/21.
…to thriving?
Although high debt levels remain a cause for concern, IAG has made encouraging progress in chipping away at its liabilities. Net debt fell 28% in 2023 to below £7bn, prompting S&P to lift the company’s credit rating to investment grade. Further debt reductions will likely improve the stock’s risk/reward profile.
Moreover, the conglomerate’s also performing well across several key metrics. In Q3, it delivered record operating profit growth, aided by robust demand for its Atlantic routes and European leisure destinations.
Passenger unit revenue advanced 2.2% and capacity expanded 17.9%, which means it’s now almost at pre-pandemic levels. These figures underpinned the share price gains the company enjoyed last year, especially the strong rally during the final months.
Looking ahead, the International Air Transport Association (IATA) estimates that demand and profitability for airlines will continue to rise this year as inflation cools and jet fuel prices fall.
Taking an even longer view, IATA believes global passenger traffic could double by 2040. IAG is well-placed to benefit should this prediction materialise.
A stock to buy?
IAG shares aren’t in as strong a position as they were before the pandemic, but that’s reflected in today’s share price. Although the group remains saddled with debt, its finances are slowly returning to health and long-term growth prospects show promise.
If 2023 was the year that marked the beginning of a recovery for the IAG share price, I believe there’s a good chance the stock could continue on this trajectory in 2024.
With a price-to-earnings (P/E) ratio of just 4.65, I believe this could be an attractive value investment opportunity with plenty of upside potential remaining. If I had spare cash, I’d invest in this stock today.
