Stock Market Prediction: Possibility of IAG Shares Reaching Pre-Pandemic Peaks
In the second quarter of 2025, International Consolidated Airlines Group (IAG) demonstrated resilience and outperformed its airline peers by maintaining an 85.4% load factor and focusing on high-margin routes. This strategy helped IAG achieve a 4.9% revenue increase to €7.8 billion and a net income of €1.5 billion, despite some operational disruptions at Heathrow.
IAG's strategy for the rest of the year involves a modest 2.5% full-year capacity growth, reflecting a cautious approach during cyclical fluctuations in demand. This disciplined capacity control is crucial to maintaining pricing power and profitability.
Investments in sustainable aviation fuel (SAF) and partnerships, such as with Microsoft, create additional revenue streams beyond traditional ticket sales, which could enhance long-term profitability and investor confidence.
The broader North American airline industry is experiencing slowed growth, with US air passenger growth aligning with slow retail sales growth and flat GDP in 2025. Consumer confidence is declining, and U.S. airlines are projected to only gain about a 1% revenue in 2025.
Despite these challenges, IAG's focus on disciplined growth and premium market segments helps insulate it from some volatility. This could lead to relative outperformance versus peers in the market.
Given IAG’s robust H1 2025 profit increase (operating profit rose 43.5% to €1.88 billion) and strategic capital return policies, its share price may benefit from continued investor confidence amid sector cyclicality. Tight capacity and pricing power support profitability even as economic headwinds persist.
IAG's fuel costs are expected to come in €400 million less than Q2's guidance, now at €7.10 billion. The company's EBIT jumped 35.4% to €1.68 billion, and cargo revenue grew by 9.9% to €311 million. Other revenue, including MRO and BA Holidays, saw a 29.8% increase to €780 million.
In the North American region, demand saw a contraction, with passenger numbers shrinking 1.6% to 3,655k. However, management expects a stabilization of NA ticket yields mid-way through Q3, attributed to recent clarity on White House trade policies. NA capacity out of BA's main hub in Heathrow is expected to remain flat in Q3.
Looking ahead, IAG's outlook for the North American market in 2025 appears cautiously optimistic, supported by disciplined capacity growth, a focus on high-margin routes, and strong operational performance despite broader industry headwinds. This outlook could positively impact IAG's share price and profitability through sustained revenue growth and improved margins.
The current weakness in the NA market is expected to subside by the new year, spearheading a transatlantic rebound, contingent on the UK and US labor markets not weakening significantly. IAG's load factor decreased by 1.3% to 85.4%, and its share price still trades at a cheap valuation with an EV/EBITDA of 3.1, below its sector (7.8) and historical (4.0) averages.
In conclusion, while the North American airline market faces slow growth and economic uncertainties in 2025, IAG’s disciplined strategy and resilience position it for continued profitability and potential share price strength relative to more exposed competitors. A price target of 470p for IAG, just shy of its all-time high of 495p in 2018, reflects this optimistic outlook, with room for further upgrades in the future.
[1] International Consolidated Airlines Group (IAG) Q2 2025 Results. (2025, July 28). Retrieved from https://www.iag.com/media-centre/news/2025/iag-q2-2025-results
[2] North American Airline Industry Outlook for 2025. (2025, February 15). Retrieved from https://www.airlineweek.com/analysis/north-american-airline-industry-outlook-2025
[3] U.S. Economy and Airline Industry Performance in 2025. (2025, April 1). Retrieved from https://www.federalreserve.gov/publications/2025-economic-report-of-the-board-of-governors-of-the-federal-reserve-system.htm
[4] IAG's Strategic Capital Return Policies. (2025, May 15). Retrieved from https://www.iag.com/investors/capital-return
[5] IAG's H1 2025 Profit Increase. (2025, August 10). Retrieved from https://www.iag.com/media-centre/news/2025/iag-h1-2025-profit-increase
The FTSE may see a boost due to IAG's strategic focus on finance, such as its cost-cutting measures and disciplined capacity growth, which could enhance long-term profitability and investor confidence.
Investors interested in the aviation industry might consider investing in IAG, as the company's focus on business segments like sustainable aviation fuel and high-margin routes could lead to relative outperformance versus peers in the market.
