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Investing.com -- Shares of International Airlines Group (LON:ICAG) slipped after UBS downgraded the stock to "sell" from "neutral," warning that downside risks now outweigh potential gains, in a note dated Wednesday.
Despite a strong first-half 2025 performance, the bank cautioned that the company may be nearing peak earnings and raised concerns over softening transatlantic demand, economic headwinds in the U.K., and uncertainty around its loyalty program.
UBS lifted its 12-month price target to £3.50 from £2.85 but argued that IAG’s recent rally leaves little room for further upside.
The stock was trading at 378p as of August 5, down from recent highs, and UBS now forecasts a potential price decline of 7.5% from current levels.
The downgrade stems from four key risks: slowing profit momentum, pressure on North Atlantic yields, a weakening U.K. economic backdrop, and changes to the Avios loyalty scheme.
While IAG remains one of Europe’s strongest long-haul carriers, UBS warned that earnings growth is losing pace.
It now expects 2026 EBIT to fall to €4.75 billion from a projected €4.97 billion in 2025, placing the estimate about 8% below market consensus.
Transatlantic performance, a crucial market for IAG, has shown signs of strain. Passenger revenue per available seat kilometre (PRASK) on the North Atlantic route rose only 0.6% in the second quarter of 2025, compared with 13% in the first quarter.
Other major carriers, including Lufthansa, Delta, and United, posted negative yield growth on the same route.
British Airways, IAG’s largest subsidiary, is set to reduce capacity to North America by 1% in the second half, reflecting waning demand.
In the U.K., rising inflation and unemployment are casting a shadow over travel demand, especially among premium travellers.
Inflation in June rose to 3.6%, above expectations, while job vacancy data weakened, according to figures from the Recruitment & Employment Confederation.
UBS also noted that the upcoming autumn budget may introduce additional taxes targeting higher-income groups.
Meanwhile, changes to the Avios loyalty program that took effect in April 2025 are drawing scrutiny.
The new structure ties tier qualification to customer spend rather than flight distance, and significantly raises the thresholds for status levels.
While there is no current evidence of reduced engagement, Avios point issuance rose 17% in the first half year-over-year, analysts remain cautious about how customers might respond over time.
UBS revised its EPS forecasts upward for 2025 and 2026 by 21% and 22% respectively but argued that the earnings outlook lacks momentum.
The brokerage continues to value IAG at 3.5x 2026 EV/EBITDA and sees the shares as fully priced.
Potential upside could come from large shareholder returns via buybacks, which are not currently factored into UBS’s model.
If IAG maintains its target net debt/EBITDA ratio below 1.8x, it could return more than €7 billion to shareholders over the next three years, equivalent to over 35% of its current market capitalization. However, that assumes no deterioration in financial or market conditions.