IAG: Action stations. Remain Outperform, TP £5.50

Research evidence excerpt

IAG: Action stations. Remain Outperform, TP £5.50

a constrained London Unchanged

market. Airline slots are a valuable and often overlooked asset that, unusually,

PRINCIPAL CATALYSTS appreciate over time and largely do not appear on the balance sheet. They are crucial

for securing traffic and are particularly earnings-enhancing in constrained markets such • Cash returns: We see this rising to €2bn+ pa even on

rising capex bills as the group re-fleets as London Heathrow. This airport, at over 95% runway utilization, cannot really grow

flight movements. As demand expands, this therefore tightens the capacity balance • London Heathrow continues to provide higher profit as

and, we expect, should lead to ongoing high yields. demand growth outpaces supply growth on supply constraint

with fully-utilized infrastructure

• Iberia: the best airline in the world? Iberia is IAG’s second-largest business,

contributing ~25% of capacity and earnings. In investors’ minds, it frequently exists in • Technology transformation creates unit revenue upside,

the shadow of the far larger BA. That is a shame, as it obscures the quality of this notably at British Airways, with move to an Order Management

exceptional business. Specifically, two qualities — its commanding market position on System and airline retailing platform

the booming Madrid-Latin America route and its extraordinary productivity. Together,

these gave it the highest ROIC on the planet in 2025, at 28%,beating both Ryanair and • The Latin American market continues to experience high

Emirates. Better yet, Iberia can continue to grow and is targeting medium-term EBIT of levels of demand growth

€1.4bn, up from €1.3bn in 2025, and €0.5bn in 2019.

BERNSTEIN vs CONSENSUS: UNDERLYING EBIT (€m) RISK TO AN INVESTMENT