IAG shares: Ambitious British Airways will deliver, say analysts

Analysts are backing IAG shares for 2025 as the group’s flagship brand, British Airways, pushes ahead with its £7bn transformation plan.

Panmure Liberum expects BA to fulfil its “ambitious” operating margin improvement targets of 15 per cent by 2027 vs 10 per cent in 2023.

The airline, the largest owned by the IAG conglomerate, unveiled a raft of planned changes at a showcase event in London earlier this year, including a nearly £1bn injection into its IT infrastructure, machine learning and artificial intelligence capabilities.

The so-called £7bn modernisation programme had some blockbuster features but also aims to fix the basics.

While demand has boomed and the IAG share price nearly doubled in 2024, BA has been plagued by criticism over its operational performance, including a high rate of delays and cancellations.

Panmure’s Gerald Khoo noted the scheme would begin to address “past under-investment” and improve resilience, while also funding the commercial side of the business with a new app and “more flexible revenue management unlocked by new 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 wrote in a note.

Khoo said he had been reassured at the most recent investor day that the plan was deliverable, although inevitably, there would be some upfront costs.

The wider market is also complex. Travel demand has soared in the years following Covid-19 lockdown and has shown little sign of slowing in 2024.

IAG shares set to benefit from travel demand

However, analysts noted that aircraft delivery delays from both Boeing and Airbus could prove to be a “potential headwind.”

Both plane makers have struggled to meet delivery targets amid long-running supply chain issues, and BA operates a fleet of more than 280 aircraft comprising both A380s and 787s.

It also has 18 Boeing 777s on order, which are 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,” Khoo said.

Khoo added that there are also challenges with the existing fleet after engine durability issues were discovered on the 787s Rolls-Royce-manufactured Trent 1000 engines, causing BA flights to be suspended.

However, the issues are unlikely to overshadow a wider boom in the market. Panmure has slapped on a 500p Buy rating for the IAG.

Shares rose 95.9 per cent during 2024. How high could they go in 2025?