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As I write, the owner of British Airways Consolidated International Airlines (LSE:IAG) looks set to be one of the best performers FTSE 100 shares in 2024.
What went so well? And how much money would an investor have made if they had bought £10,000 worth of IAG shares as soon as the markets opened in January?
IAG rises above its competitors
Let's address that first question. Throughout the year, IAG benefited from lower fuel costs and increased demand, allowing it to increase ticket prices. An abandoned acquisition of Spain's Air Europa (due to regulatory hurdles) was also greeted with sighs of relief from investors.
But things really took a step forward when third-quarter numbers were released in November. At the time, the company announced a 15.4% increase in operating profit, thanks in part to more people flying between London and the United States.
This not only exceeded market expectations, but also destroyed the performance of rivals such as Air France-KLM and Lufthansa during the summer. The first was affected by tourists who wanted to avoid the Paris Olympics. Meanwhile, Lufthansa lost ground in Asia to its Chinese competitors. IAG's two competitors also faced higher costs.
Add to this a €350 million share buyback, and the recent share price performance (up 94% year-to-date) makes a lot of sense.
Big profits
Returning to the second question, an investment of £10,000 in early 2025 would now be worth £19,400. It's actually a little more than that if we take into account the September interim dividend (IAG's first distribution in just under four years). In terms of performance, this puts the air carrier on par with top-tier superstocks. Rolls-Royce (+96%).
Of course, it goes without saying that IAG's profits also completely crush market profitability. Over the same period, the FTSE 100 index has risen just under 7%.
This is further proof of how lucrative stock picking can be.
Can this continue?
The question is whether IAG shares will rise further. Based on the rating alone, I'm tempted to say yes. A forward price-to-earnings (P/E) ratio of just 6 still seems very reasonable.
CEO Luis Gallego also seems optimistic. He said in November that demand across all of the company's airlines “still strong“and what IAG expected”a good last quarter financially“. As things stand, analysts predict that operating profit in 2024 will reach €3.7 billion.
Figures for the full year 2024 will be published on February 26.
Buyer Beware
But an investment in IAG is certainly not without risk. Naturally, the company has no influence on the price of fuel. Adverse weather conditions, higher wages, geopolitical tensions and armed conflict can also impact operations, as can delays in parts delivery.
In October, for example, British Airways was forced to cancel hundreds of long-haul flights due to a shortage of aircraft. Ironically, this was because… Rolls Royce was not supplying enough engines.
Despite strengthening in recent years, IAG's balance sheet still looks significantly weaker than before the pandemic. That's not ideal if inflation continues to rebound.
These concerns aside, I am inclined to think that the recent momentum will continue, especially if invested in the “growing structurally“The Latin American market bears fruit.
Consequently, any investor with cash may want to consider getting involved.
