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International Group of Consolidated Airlines (LSE:IAG) was one of the biggest losers of the pandemic among FTSE 100 stocks. Indeed, at £1.50 today, IAG's share price remains anchored well below its pre-Covid levels, when the shares were trading comfortably above £4.
However, an encouraging overall performance in 2023 suggests the aviation giant could be on the road to recovery. Improving financial position and more favorable macroeconomic conditions have pushed stocks higher and this trend could continue in the coming years.
Let's take a closer look at IAG's recent history and where the stock could go next.
Of survive…
Although IAG's share price delivered a healthy performance last year, some analysts had expected a stronger recovery from its pandemic lows.
A prolonged period of strict restrictions on international travel severely affected the business. British Airways and Iberia The owner had to take on a significant amount of debt just to survive.
Additionally, high inflation rates and the cost of living crisis that followed the pandemic added other unwanted challenges for the company.
At just under £15bn, the group's debt mountain is still double IAG's market capitalisation. This legacy of Covid debt is likely to act as an ongoing risk for the company as it strives to repair the balance sheet in the months and years ahead.
However, it seems that IAG has successfully overcome these extremely tough conditions and the future looks brighter. The question of the group's survival is not questioned today in the same way as in the 2020/21 season.
…To thrive?
Although high debt levels remain a concern, IAG has made encouraging progress in reducing its liabilities. Net debt fell 28% in 2023 to below £7bn, prompting S&P to upgrade the company's credit rating to investment grade. Further debt reductions are likely to improve the stock's risk/reward profile.
Additionally, the conglomerate is also performing well across several key metrics. In the third quarter, it achieved record operating profit growth, helped by strong demand for its Atlantic routes and European leisure destinations.
Passenger unit revenue increased by 2.2% and capacity expanded by 17.9%, meaning it is now almost at pre-pandemic levels. These figures supported the share price gains the company enjoyed last year, especially the strong rally over the past few months.
Looking ahead, the International Air Transport Association (IATA) estimates that airline demand and profitability will continue to rise this year as inflation cools and jet fuel prices fall.
Taking an even broader perspective, IATA believes that global passenger traffic could double by 2040. IAG is well placed to benefit if this prediction comes to fruition.
A stock to buy?
IAG shares are not in as strong a position as they were before the pandemic, but that is reflected in the current share price. Although the group remains debt-ridden, its finances are slowly returning to health and long-term growth prospects are promising.
If 2023 was the year that marked the start of an IAG share price recovery, I think there's a good chance the stock will continue on this trajectory into 2024.
With a price-to-earnings (P/E) ratio of just 4.65, I think this could be an attractive value investment opportunity with plenty of upside potential remaining. If I had extra money, I would invest in this stock today.
