IAG Shares Compare Favourably to European Peers, Says Analyst

International Airlines Group (LON: IAG) reported a record operating profit for FY25, with Edison’s Russell Pointon highlighting strong returns, improving operating leverage and a valuation that screens well against other European airlines, in a note reacting to the earnings report.

The company delivered an operating margin of 15.1%, at the top end of its target range, while return on invested capital reached 18.5%, above its through-the-cycle goals.

Operating profit of around €5 billion matched consensus expectations, with Pointon noting that 3.5% revenue growth translated into roughly 13% operating profit growth and about 22% adjusted EPS growth. Lower fuel costs, down around 9% and previously accounting for 28% of FY24’s cost base, helped drive the improvement alongside tight control of non-fuel expenses.

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Most airlines within the group saw year-on-year margin gains, and all except Vueling and Loyalty operated within or above targeted margin ranges. Net debt/EBITDA fell to 0.8x, well below the 1.8x cycle target, strengthening the balance sheet ahead of elevated fleet investment planned from FY27. The FY25 dividend rose roughly 9%.

For FY26, management expects continued revenue growth, including around 3% more capacity. Non-fuel unit costs appear favourable, though fuel costs are projected to rise about 4% due to higher prices and additional environmental compliance charges. Free cash is guided at more than €3 billion, supporting a larger €1.5 billion share buyback.

Pointon concludes that IAG’s valuation “continues to compare favourably” with European peers trading at an average P/E of 7.7x, while also offering a more attractive dividend yield.