2025’s been a rough start for the International Consolidated Airlines (LSE:IAG) share price. The long-haul airline group has seen close to a quarter of its market-cap get wiped out over the last couple of months. Yet, despite what the direction of the stock suggests, the underlying business seems to be chugging along nicely.
So much so that analyst projections are calling for some exceptional growth across the next 12 months.
IAG transformation programme delivers
Following IAG’s latest results, shareholders were greeted with some pretty phenomenal numbers. Revenue across 2024 came in 9% higher. But it’s the operating profits that are stealing the show with a 27% surge even after ignoring one-time events.
Digging deeper, we see that these results were driven by a 7% boost in passenger volumes along with new efficiencies from its £7bn transformation programme. Subsequently, operating margins expanded by 430 basis points. And as of December, IAG’s profitability stands at 13.8% – on track to reach management’s medium-term target of 15%.
Even at current levels, the firm’s margins stand out when compared against its leading competitors:
| Airline Stock | Operating Margin |
| Deutsche Lufthansa | 4.1% |
| Air France | 4.7% |
| Turk Hava Yollari | 10.6% |
| Ryanair | 12.4% |
| easyJet | 6.3% |
With more money flowing to the bottom line, the group’s free cash flow surged from €1.3bn in 2023 to €3.6bn in 2024. And that’s even after reinvesting €2.8bn into its own operations. And subsequently, shareholders were rewarded with a €1bn share buyback scheme.
With that in mind, it’s hardly a surprise to see bullish sentiment come from City analysts. As of 3 April, 13 institutional analysts have recommended this stock as a Buy or Outperform, with only four putting the shares on Hold and one as a Sell. And this positive opinion has also spilt over into the 12-month IAG share price forecast.
Right now, the average consensus among analysts is that this airline stock will reach 403p. That’s a 69% increase from current levels – enough to transform a £5,000 initial investment into £8,430 by this time next year!
What could go wrong?
Earning almost three and a half grand from a single investment today sounds pretty awesome. But it’s critical to remember that forecasts are ultimately just educated guesses. Consequently, there’s always an element of inaccuracy, meaning that the IAG share price may not rise as expected. In fact, it could fall.
Capital expenditures in 2024 were notably lower than in 2023. Part of this comes from the previously mentioned efficiencies. However, it was also driven by reduced deliveries of new aircraft. As a result, capex in 2025 is actually expected to rise from the current €2.8bn to €3.7bn.
There are also fuel costs to consider. Currently, analysts are expecting the price of jet fuel to fall and stabilise during 2025 to around $87 a barrel. For reference, the average price in 2024 was closer to $99 a barrel.
Obviously, that’s good news for IAG as it helps management strive towards its 15% margin target. However, should these projections prove wrong, or a disruption in fuel production causes prices to rise, the IAG’s profitability in 2025 may disappoint, leading to a lower share price.
All things considered, this industry leader appears to be taking the proper steps to build value for shareholders. So even with the risks, investors may want to consider taking a closer look.
This post was originally published on Motley Fool
