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Despite climbing 105% in five years, International Consolidated Airlines Group (LSE:IAG) shares trade at a price-to-earnings (P/E) multiple of 9. That’s well below the FTSE 100 average of 17.
It’s also well below the multiple the stock traded at a year ago, which was 21. So is this a huge opportunity, or is something else going on?
Operational leverage
Nearly every business goes through ups and downs, but some more so than others. And airlines are some of the most volatile when it comes to earnings. The biggest costs are fuel, staff, airport fees, and aircraft. And importantly, these are the same whether a plane is 99% full or 60% empty.
That can be great when things are going well. Being able to add more customers with almost no extra cost means almost all the revenue from ticket sales converts to profits. Equally though, earnings can evaporate quickly when demand…
