Positive Outlook as International Airlines Group Forecasts Return to Profitability

No-moat International Airlines Group, or IAG, sounded an upbeat tone at the group’s full-year results. The group, which owns a portfolio of airlines including British Airways, Iberia and Vueling, forecasts a return to profitability in 2022. This is on the back of strong summer demand with capacity reaching 90% of precoronavirus levels by the third quarter and 85% for the full year. This is welcome news as the group reported an operating loss of EUR 2.8 billion for the year and cumulative operating losses of EUR 10 billion since the start of the pandemic, the highest of the legacy carriers under our coverage. The group has suffered relative to peers due to its large exposure to the U.K. market and premium international travel, which has been heavily restricted up until recently. The outlook is much rosier as many of the group’s core markets have either abandoned or heavily reduced travel restrictions. We don’t expect any major changes to our GBX 300 fair value estimate as we update our models. Shares appear extremely cheap, but we caution investors about the high uncertainty stemming from the group’s high debt levels and sensitivity of our assumptions.