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I love it when a plan comes together, and I think that’s happening with my recent purchase of International Consolidated Airlines Group (LSE: IAG) shares.
I spent much of 2024 mooning over shares in the FTSE 100 airline conglomerate, which looked unbelievably cheap, with a price-to-earnings ratio between three and four.
It simply looked too good to be true. Especially since travel was beginning to pick up in the aftermath of the pandemic.
FTSE 100 recovery stock
International Consolidated Airlines was struggling with a bad case of long Covid, which among other symptoms included massive net debt. But slowly, before my very eyes, the shares taxied towards the runway, then took off.
Where was I when this happened? Stuck in departures, wondering why I hadn’t booked my seat on board.
Across 2024, the shares almost doubled, making them the biggest winner on the FTSE 100, and I was not a happy traveller. In fact, I wasn’t travelling at all.
On 5 January, I foolishly decided to torment myself by working out how well an investor would have done if they’d gambled an entire year’s £20,000 Stocks and Shares ISA on IAG at the start of 2024.
It turned out they’d have had £39,720. In fact, they’d have slightly more, as the group resumed paying dividends in 2024. The trailing yield of 0.85% would have given them another £170, pushing the total holding towards £40k.
So what drove the recovery? Last year, saw a resurgence in transatlantic travel, which boosted British Airways and helped offset European flight delays. BA’s margins hit 20%, despite a 14% rise in labour costs. Falling fuel prices helped.
In January, I decided I’d missed my flight, and would have to cast around for the next great recovery play.
Enter Donald Trump, with his ‘Liberation Day’ tariffs on 2 April. Global share prices crashed, but few on the FTSE 100 fell as hard or as fast as International Consolidated Airlines.
Now it’s growing again
Its exposure to the transatlantic market was a massive plus as the economy picked up, and an equally massive minus when Trump sent shares into a tailspin.
If the US was doing less business with the rest of the world, that would surely extend to travel between Europe and the Americas.
And that’s when I saw my chance. The moment Trump hit the pause button on 9 April, I scraped together everything in my trading cash account and threw it at the stock. I wasn’t going to miss my flight for the second time.
So far, I’m up 27% in short order. As a benchmark, the shares are up 92% over 12 months but they still don’t look too expensive, with a P/E of 6.95. This suggests there may be further to go.
This will remain a risky stock. Who knows what Trump will do next? The US economy may struggle. Europe isn’t exactly in the flush of health either.
The airline sector seems naturally volatile – anything from volcanoes to wars, pandemics, and volatile fuel prices can upend revenues, costs, and profits. But for now, I’m happy. I’ve taken my second chance and I’m hoping for a repeat of 2024. Although something tells me that this time, the ride could be a bit bumpier.
