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After the pandemic, travel stocks have lost ground as they face challenges related to Covid.
So, despite the rather slow and painful road to recovery, IAG (LSE:IAG) shares have benefited greatly from the world’s stable return to more normal travel patterns.
So, with airline stocks bouncing back from the pandemic, should I consider buying IAG shares for my current portfolio?
IAG’s share price changes
Answer: The first thing to note is that IAG’s current share price performance is quite stable.
Over the last six months, the group, which owns British Airways, Aer Lingus, and Iberia, has increased its stake by 60%.
However, since this time last year, IAG’s share price has risen by more than 6%.
Also, if I bought the stock in January 2020, it would have lost about 78% of its value by October.
That said, I’m not concerned with short-term fluctuations in stock prices. But I look to evaluate the company on the basis of current performance and future prospects.
Where is IAG today?
Global airline traffic continues to rebound after the pandemic.
Importantly, this means that the plane is full enough for each trip so that the profit becomes more sustainable again.
In particular, IAG is currently benefiting from the increased travel demand that holiday makers have experienced.
While business-related travel has improved, the strong recovery in the holiday market has had real benefits for the group.
However, when there is still a lot of demand for travel, it is not possible to keep up. My main concern is how IAG will get back to normal demand levels, especially given the massive debt pile.
However, the group has also benefited from consolidation in the industry, with several smaller operators being forced out of business.
On top of this, IAG’s acquisition of Air Europa shows that market share is there for the taking if the company can be strategic with further acquisitions.
Financial results were generally positive
Bolstered by recovering travel demand, IAG posted an impressive €1.2bn profit for 2022. That rose from a €3bn loss in 2021 as profits more than doubled to €23.1bn from €8.5bn.
The group’s net debt also fell to €10.4bn after ballooning during the pandemic.
Despite this, I am wary of the overall debt pile, which remains substantial and attracts significant interest payments.
As a result, any shareholder payments will be on the back burner as debt management must take priority in the future.
What is the future of IAG?
After restoring capacity to 87% of pre-pandemic levels in the last quarter of 2022, IAG expects capacity to be around 98% of 2019 levels in the new financial year. That’s positive news for investors.
In addition, underlying operating profit is expected to be €1.8bn to €2.3bn, with most of the improvement expected to come in the first half of the year.
So, despite the challenges facing the group, I wouldn’t be surprised to see IAG shares continue to soar over the next few months and beyond.
On this basis, if I had money to spare, I would happily buy IAG shares for my portfolio today and continue for a long time as global travel continues to rebound.
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