Analysts are positioning IAG shares as a strong pick for 2025, buoyed by British Airways' ambitious £7bn overhaul strategy. Panmure Liberum anticipates that BA will achieve its "ambitious" operating margin enhancement objectives, aiming for 15 per cent by 2027, compared to 10 per cent in 2023.
The airline, which serves as IAG's flagship brand, detailed an extensive range of upgrades at a London showcase earlier this year. These included a significant investment nearing £1bn in their IT infrastructure, complementing machine learning and artificial intelligence advancements, as reported by .
Dubbed the £7bn modernisation initiative, this plan not only focuses on high-impact innovations but also intends to rectify fundamental issues.
Although the surge in demand has prompted the share price of IAG to almost double in 2024, BA continues to face criticism over operational hurdles manifesting as frequent delays and cancellations. Gerald Khoo from Panmure believes this programme will commence tackling the "past under-investment" while bolstering reliability and financing the commercial aspects of the business – including the roll-out of a new app and enhanced revenue management facilitated by state-of-the-art systems.
"Improving operational performance and reducing disruption is a major potential saving [and] also has the potential to drive improved unit revenues without passengers paying anymore," he commented in his analysis. At the latest investor day, Khoo expressed confidence in the feasibility of the plan, despite acknowledging the likelihood of some initial costs.
The travel industry is experiencing a complex landscape. Following the Covid-19 lockdown, there has been a surge in travel demand that shows no signs of abating in 2024.
IAG shares are poised to benefit from this increased demand. However, analysts have pointed out that delivery delays from both Boeing and Airbus could pose a "potential headwind."
Both aircraft manufacturers have struggled to meet their delivery targets due to ongoing supply chain issues.
British Airways operates a fleet of over 280 aircraft, including A380s and 787s, and has 18 Boeing 777s on order, expected to be delivered by the end of the transformation programme in 2027. "Delivery delays are widespread, across both Airbus and Boeing and all aircraft types to varying degrees. We would be more nervous about the 787s BA has on order than the A350s," said Khoo.
Khoo also highlighted challenges with the existing fleet after engine durability issues were discovered on the 787s Rolls-Royce-manufactured Trent 1000 engines, leading to the suspension of BA flights. Despite these issues, the overall market boom is unlikely to be overshadowed.
Panmure has given IAG a 500p Buy rating. Shares rose 95.9 per cent during 2024.
The question now is, how high could they go in 2025?
