International Consolidated Airlines Group shares climbed 7.07% on 12 June, topping the FTSE 100 leaderboard in a session dominated by geopolitical developments rather than corporate news.
Reports that the US and Iran were moving closer to a peace deal provided the catalyst, sending the British Airways-owner sharply higher on hopes of a more stable regional outlook.
The potential agreement triggered an immediate drop in the oil price to $81 a barrel, well below the peak of $118 reached on 29 April, offering significant relief on jet fuel costs.
Fuel is one of the largest expenses any airline faces, meaning a sustained fall in oil prices could have a meaningful positive impact on IAG’s operating margins going forward.
The conflict has also severely disrupted travel to the Middle East, including traffic through key hub Dubai, so any lasting ceasefire would directly support a recovery in passenger revenues.
Despite the volatility that has characterised the stock since the pandemic, IAG shares are up 119% over five years and 33% over the past 12 months, a strong long-term performance by any measure.
Yet the stock continues to trade at a price-to-earnings ratio of just 6.6, a striking discount to the FTSE 100 average of around 16, which raises obvious questions about whether the market is undervaluing the business.
The low valuation likely reflects a structural caution among investors who demand a cushion against the considerable risks airlines face, including wars, oil spikes, recessions, tariffs, and natural disasters.
Management has made notable progress rebuilding the balance sheet since the pandemic, halving net debt to 4.2 billion euros and launching a second 500 million euro buyback scheme to further reduce share capital.
Full-year profits have recovered sharply, rising from a loss of 2.77 billion euros in 2021 to 1.26 billion euros in 2022, then climbing to 3.51 billion euros in 2023, 4.44 billion euros in 2024, and 5.02 billion euros in 2025.
The board has also moved to restore dividends, with the yield forecast at 2.1% this year and rising to 2.9% in 2027, signalling growing confidence in the sustainability of earnings.
Airlines operate in an inherently cyclical sector, and IAG remains exposed to sudden reversals, meaning that if the Iran deal collapses, the stock could quickly become one of the market’s sharpest fallers.
Investors considering a position should be clear-eyed about that volatility and take a long-term view rather than chasing sharp single-session gains like the one seen on 12 June.
For those with the patience to ride out the turbulence, the combination of strong earnings growth, a rock-bottom valuation, and improving shareholder returns makes IAG one of the more compelling opportunities currently sitting on the FTSE 100.