Outstanding market performance reflects strong results
May’s best stock in the FTSE 100 index was British Airways operator International Consolidated Airlines Group (IAG) after its first quarter (Q1) results and unchanged full-year outlook eased City fears about the potential impact of tariffs and economic turbulence on North Atlantic demand. The over 25% advance left IAG shares 11.5% higher for the year-to-date, resuming the recovery of the past couple of years.
This exceptional share price performance reflects investor relief that IAG has successfully navigated recent industry challenges while positioning itself for continued growth. The Q1 2025 strong results came at a time when many investors had been concerned about potential headwinds facing the aviation sector.
The magnitude of the share price gain demonstrates the extent to which positive surprises in the airline industry can drive significant investor returns, particularly when companies exceed expectations during periods of uncertainty.
IAG’s outperformance of the broader FTSE 100 during May highlights the stock’s appeal to investors seeking exposure to the recovering travel sector, with the company’s diversified route network and strong premium positioning proving attractive in the current environment.
Strong financial performance across key metrics
IAG, the parent company of British Airways, Iberia, Aer Lingus, Vueling, and LEVEL, reported a robust financial performance for Q1 2025, signalling a strong recovery in the aviation sector. The group achieved a revenue of €7.04 billion, marking a 9.6% increase compared to the same period in 2024.
Operating profit before exceptional items rose to €198 million, a significant improvement from €68 million in Q1 2024, resulting in an operating margin of 2.8%. The group also reported a profit after tax of €176 million, reversing a loss of €4 million in the previous year. Earnings per share (EPS) stood at €0.037, up from a loss of €0.001 per share in Q1 2024.
This dramatic improvement in profitability demonstrates IAG’s operational leverage as travel demand recovers, with higher revenues flowing through to the bottom line more efficiently than during the initial stages of the post-pandemic recovery.
The healthy operating margin of 2.8%, while still below pre-pandemic levels, represents substantial progress and suggests that IAG is successfully managing the balance between capacity growth and cost control in a competitive market environment.
North Atlantic strength drives revenue performance
This growth was driven by heightened demand across key markets, particularly in the North Atlantic region, where premium cabin demand offset some softness in US point-of-sale economy leisure travel. IAG’s performance was bolstered by a 3.2% year-over-year (YoY) increase in passenger revenue per available seat kilometre (PRASK), with the North Atlantic routes experiencing a substantial 13% rise.
The exceptional performance of North Atlantic routes reflects the continued recovery in business travel and the premium segment, which typically generates significantly higher margins than economy leisure travel. This trend is particularly important for British Airways and Aer Lingus, both of which have substantial North Atlantic operations.
The 13% increase in North Atlantic PRASK indicates strong pricing power in this crucial market segment, suggesting that IAG has been able to pass through cost increases while maintaining or growing passenger volumes on these high-value routes.
Cargo revenues also saw a 12.4% YoY increase, contributing to the overall revenue growth. This diversified revenue stream provides additional support during periods when passenger demand may fluctuate, highlighting the benefits of IAG’s integrated business model.
Strategic fleet expansion signals confidence
In line with its strategic expansion plans, IAG announced an order for 53 widebody aircraft, including 32 Boeing 787-10s for British Airways and 21 Airbus A330-900neos, which may be allocated to Iberia, Aer Lingus, or LEVEL. Deliveries are scheduled between 2028 and 2033, pending shareholder approval in June.
This substantial aircraft order underscores IAG’s confidence in long-term growth prospects despite ongoing market uncertainties. The investment in modern, fuel-efficient widebody aircraft demonstrates management’s commitment to capturing growth opportunities in international markets.
The choice of Boeing 787-10s for British Airways reflects the airline’s strategy of deploying larger, more efficient aircraft on high-density routes, potentially improving unit costs and environmental performance while meeting growing demand.
The flexibility to allocate the Airbus A330-900neos across multiple airlines within the IAG group provides operational efficiency and strategic positioning advantages, allowing capacity to be deployed where market conditions are most favourable.
Operational outlook and cost management
Looking ahead, IAG maintains its guidance for a 3% capacity increase in 2025 and anticipates total fuel costs of approximately €7.5 billion, benefiting from recent declines in oil prices. The group also expects non-fuel unit costs to rise by around 4% for the year, influenced by factors such as foreign exchange impacts and investments in operational resilience.
The modest 3% capacity increase suggests a disciplined approach to growth that prioritises profitability over market share, reflecting lessons learned during the pandemic about the importance of maintaining pricing discipline in a competitive market.
The €7.5 billion fuel cost projection, while substantial, benefits from more favourable oil price trends compared to earlier expectations. Fuel costs typically represent around 20-25% of airline operating expenses, making oil price movements a critical factor in profitability.
The expected 4% increase in non-fuel unit costs reflects ongoing inflationary pressures across the aviation industry, including labour costs, airport charges, and maintenance expenses. IAG’s ability to offset these increases through revenue growth will be crucial for maintaining margin improvement.
Market position and competitive advantages
IAG’s multi-brand strategy continues to provide competitive advantages through its ability to serve different market segments and geographical regions with specialised airline brands. British Airways maintains its premium positioning on long-haul routes, while Vueling competes effectively in the European short-haul market.
The group’s hub-and-spoke model, centred on London Heathrow, Madrid, and Dublin, provides connectivity advantages that are difficult for competitors to replicate. These strategic advantages have become increasingly valuable as business travel recovers and competition intensifies.
IAG’s cargo business, integrated across its passenger operations, provides additional revenue diversification and operational synergies. The strong cargo performance in Q1 demonstrates the value of this integrated approach during periods of varying passenger demand.
The company’s loyalty programmes and customer relationships, built over decades of operation, provide defensive characteristics that help maintain market share and pricing power even during competitive periods.
IAG technical analysis and analyst rating
IAG has a TipRanks Smart Score of ‘6 Neutral’ and is rated as a ‘buy’ with 11 ’buy’, 4 ‘hold’ and 1 ‘sell’ recommendation (as of 04/06/2025).