International Airlines Group (IAG) reported a second-quarter operating profit of EUR 1.68 billion, up 35% from last year, with a margin of 11.8%. Iberia led with a 14.5% margin. Premium traffic and strength in Latin America offset weaker US leisure. Net leverage fell to 0.7 times. Strong margin expansion demonstrates IAG’s ability to navigate industry cost pressures. Management reduced full-year capacity growth outlook to 2.5% to maintain yields and resilience. Iberia aims for over 13% margins and a EUR 1.4 billion profit target, supported by a strong South Atlantic network and disciplined growth. British Airways is undergoing a transformation, with new revenue and check-in systems enabling dynamic pricing and long-term margin expansion. Capacity cuts are being made to protect yields and on-time performance, balancing engine shortages, supply chain delays, and geopolitical disruptions with resilient premium demand and stable load factors in core long-haul markets. The bottom line: Morningstar maintains a fair value estimate of GBX 410 for IAG. Iberia’s margin transformation, reduced leverage, and disciplined reinvestment support sustainable earnings growth. Loyalty growth and pricing power in long-haul markets position IAG to benefit from structural tailwinds replacing the recovery trade. Structural tailwinds include long-haul premium density, loyalty profit scale, and industrywide supply constraints limiting aircraft deliveries and engine shortages, strengthening pricing power in core trans-Atlantic and Latin American routes. Capacity cuts are implemented to safeguard pricing power and operational reliability, emphasizing premium yield and on-time performance amidst engine shortages, air traffic control challenges, and disruptions in the Middle East impacting scheduling flexibility.

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