IAG flying high

International Consolidated Airlines Group announces the traffic report for November on Wednesday 3 December, where dealers are hoping to see a good start to the fourth quarter.

Flight of British airways planes
Source: Bloomberg

Shares in British Airways owners IAG have been gaining momentum since the third-quarter update last month, in which earnings jumped by 30% and revenue rose by 9%. These recent figures should keep the airline on track to pay its first dividend in 2015. The parent company was formed in 2011 as a result of a merger between British Airways and Iberia, and neither airline has paid a dividend since 2008. A cash pay-out next year would be a clear sign that the company has changed course. 

CEO Willie Walsh has spent the last few years battling unions and trimming uneconomical routes as part of his restructuring plan. Spanish carrier Iberia has been the focus of his attention; the company revealed a 118% increase in third-quarter profits but Mr Walsh stated there is more work to be done.

British Airways is benefitting from its well-established transatlantic business. The London-based carrier is less reliant on European routes, unlike Air France-KLM and Lufthansa who are suffering from the declaration in the eurozone. BA posted a 27% increase in third-quarter profits, which was stand out in comparison to Air Frances-KLM’s 61% slump in earnings, and Lufthansa was forced to slash next year’s guidance due to ‘fierce competition’, which is mostly coming from Middle Eastern airlines.

IAG announced that October air traffic rose by 7.5% in terms of revenue passenger kilometres on the year. High single-digit growth is impressive when you take into account that the Ebola crisis was at its height then. Using the same metric, the November 2013 figure rose by 8.4% compared with 2012. Traders will want to see a good start to the fourth quarter to ensure that full-year profit forecast, which was recently upped by 10-20%, is met.

Market analysts are very bullish on IAG; there are a total of 31 ratings on the stock and out of that, 23 are buy recommendations, six are holds and two are sells. The current share price is £4.60 and analyst average target price of analysts is £4.93. Since the third-quarter update in October, the analysts are a touch less bullish on the stock with regards to buy/hold/sell ratings, but the previous average target price was £4.75.

The airline will report full-year figures in February of next year. Dealers are expecting revenue of €19.96 billion and adjusted income of €824 million. This forecast would equate to a 6.9% and 124% increase on last year’s revenue and adjusted net income respectively.

The stock is receiving support at the 50-hour moving average of £4.39. A move below that would see the stock drift back to £4.20, which coincides with the 200 H-MA. If the traffic figures are good then £4.85 will be on traders’ radars.

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