RBC’s latest air traffic report sees reasons to be upbeat about International Consolidated Airlines Group SA (LSE:IAG), the parent company of British Airways and Iberia, even if confidence across the sector is a bit wobbly. Here’s why they’re optimistic:
Travel demand is resilient. European air passenger numbers grew 3% in June, hitting about the same levels as 2019.
While we’re still 10% below where pre-pandemic growth trends would have put us, the rebound is pretty solid given all the ups and downs since 2020.
Importantly for IAG, long-haul premium travel, the more expensive seats in the front of the plane, is holding up especially well. That’s good news for British Airways, which relies heavily on business and first-class fares for profit.
Prices are holding up. People are spending more on flights even if overall consumer spending is a bit sluggish. In the UK, airline spend was up nearly 6% year on year in June, even though the number of bookings actually fell.
This means fares are higher, helping airlines like IAG make up for fewer tickets sold.
Costs are a tailwind. Jet fuel, one of airlines’ biggest costs, is still about 12% cheaper than last year, and a stronger euro is also helping keep costs down for European airlines.
Digital momentum matters. IAG’s airlines, especially British Airways and Aer Lingus, are seeing more action on their websites and apps, always a sign that demand is steady and brand loyalty is holding up.
With demand for premium long-haul seats remaining firm, capacity growth slowing, and costs behaving, RBC thinks airlines like IAG are in a favourable spot.
In other words, if you’re looking for a well-run company with exposure to travel recovery and still-reasonable share prices, IAG is one to keep an eye on.
Of course, consumer confidence remains fragile, and the overall sector still faces its share of headwinds. But for now, IAG looks to be navigating the skies with a steady hand.