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Final 12 months was a superb one for shareholders in Worldwide Consolidated Airways Group (LSE: IAG). The truth is, IAG shares carried out higher than some other within the FTSE 100.
But regardless of that excellent efficiency, the present share price-to-earnings (P/E) ratio is seven. That sounds pretty low cost at first look.
The final precept is that the decrease a P/E ratio, the cheaper the share appears, though in follow that additionally is determined by whether or not earnings are prone to keep on the similar degree and in addition how a lot debt the corporate is carrying.
So, with that form of P/E ratio and powerful business efficiency, may IAG shares transfer greater in 2025 – and ought I to think about including the airline proprietor to my portfolio?
2025 could possibly be a fantastic 12 months commercially
Trying to the 12 months forward, I feel issues may go nicely for IAG. Civil aviation demand is excessive and it may keep that method into the summer time. On the third-quarter level final 12 months, IAG stated it anticipated its sturdy efficiency to proceed for the remainder of 2024.
It didn’t get into element concerning the 2025 outlook at that time, however did say that, “Long run we see optimistic, sustainable demand for journey”. I do not likely know what which means: is “optimistic” a synonym for rising, or not? However whereas the language just isn’t useful, the temper appears to be considered one of optimism.
Set towards that, nonetheless, I additionally see some dangers this 12 months. A number of giant economies are both performing weakly or have just lately been in a recession. Extra might comply with.
That, mixed with constrained client spending, may imply weaker demand for leisure journey. On high of that, enterprise journey demand continues to be weak in comparison with earlier than the pandemic.
IAG’s strategic selections are a priority for me
On high of these broader dangers, I really feel IAG has lengthy been making some strategic selections that might additionally damage demand at a few of its airways, reminiscent of British Airways.
It has been attempting to enhance elements of the passenger expertise. However after years of price chopping ate into passenger loyalty, I feel IAG has misplaced the ability of a few of its manufacturers – maybe eternally.
On high of that, latest modifications introduced to BA’s loyalty programme appear to have gone down like a lead balloon with loads of frequent flyers. That might damage demand additional.
Right here’s why I’m not investing
On high of extra foreseeable exterior demand dangers like a weak financial system, I’m additionally involved about ones which can be much less simple to identify. For instance, one other pandemic or terrorist assault may badly damage civil aviation demand in a single day.
That places me off investing in airways usually. I’ve made exceptions earlier than (together with proudly owning IAG shares).
However whereas I see additional house for IAG shares to maneuver up in worth in coming months, the dangers right here don’t sit comfortably with me. So I’ve no plans to take a position.