This latest news could have big implications for the IAG share price
News broke late last week that International Consolidated Airlines Group (LSE:IAG) – or IAG as itâs known â is interested in acquiring another airline as part of a formal bidding process. This came as a surprise to me, but once I did some more research, it made a lot of sense. The stock is up 58% in the past year, but if it wins, I think there’s serious potential for the IAG share price to keep going.
What we know so far
Itâs targeting TAP Air Portugal that was nationalised back in 2020 due to the impact of the pandemic. The Portuguese state holding company that owns TAP has begun the process of selling its 49.9% stake back to private hands.
Lufthansa and Air France KLM are interested in buying, with news on Friday (21 Nov) that IAG was also keen. An IAG spokesperson actually said that “we believe TAP has significant potential within IAG.”
We won’t know the outcome very soon, with the process expected to be concluded by early 2026.
What the interest shows me
Regardless of whether IAG gets the stake in TAP or not, it shows me some key points. TAP has a strong base in European flights down to South America, something in which IAG is weak. It can also benefit from further strengthening short-haul flights in Europe, gaining valuable market share. Finally, it would be able to take advantage of cost efficiencies, be it through large bulk ordering of parts, jet fuel or simply from consolidated labour costs.
All of this shows me that IAG is keen to benefit from lower costs (as are all companies), strengthen its short-haul position in Europe, and grow in the long-haul space. I think these strategies all make sense. So even if it doesn’t get TAP, I still expect the management team to pursue these goals. Ultimately, if the business is heading in the right direction and its strategy succeeds, the share price should follow suit.
A win would be even bigger
If IAG does manage to take over TAP, the rally in the stock could be even larger. Financially, TAP is much smaller right now. For example, in the latest quarter, IAG posted a profit of â¬1.4bn, compared with TAP’s â¬125.9m. But it’s the access to clients, the flight routes, and the pricing power it would gain as a result that could be much more significant.
If IAG can price more aggressively due to greater market share, it could really help push the stock higher. Even if we assume the integration only boosts profits by 10%, the share price should rise to reflect this.
In terms of risks, let’s not forget that TAP basically went bust during the pandemic. I know it was a difficult time for the sector, but some might see the airline as being financially unstable. Having Portugal provide political oversight could also give IAG some headaches further down the line.
Even with these risks, I think IAG’s interest is very telling. If it does take over TAP, I believe the stock could do very well. Even if it doesnât, the strategy and push for growth is clear, which should yield results going forward. I think it’s a stock for investors to consider.
The post This latest news could have big implications for the IAG share price appeared first on The Motley Fool UK.
Should you invest £1,000 in International Consolidated Airlines Group, S.A. right now?
When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.
And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if International Consolidated Airlines Group, S.A. made the list?
More reading
- As the FTSE falls I can see cheap stocks everywhere â time to go shopping!
- Is IAGâs share price too cheap to ignore after an 11% drop following Q3 results?
- 3 FTSE 100 best-sellers I won’t touch with a bargepole
- Should investors consider buying last weekâs FTSE 100 losers IAG, Rightmove, and Smith & Nephew?
- How to prepare for a stock market crash — before it’s too late
Jon Smith has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
