What next for International Consolidated Airlines (IAG) shares after record 2025 results?

International Consolidated Airlines (LSE: IAG) shares fell Friday (27 February), even though the company reported “a record financial performance in 2025.“

CEO of the British Airways parent Luis Gallego summed it up: “Adjusted EPS growth of 22.4% … we have grown the dividend per share by 8.9% and are announcing today a further return of excess cash of €1.5 billion.”

What more do investors want?

IAG shares have quadrupled since their lows of 2022. They are, however, still down from pre-Covid prices. But after such a big jump in the past few years, shareholders might just have decided to take some profit off the table. The airline business can be a volatile one, with uncontrollable risks round every corner. So why not cash in when your shares are up, right?

I don’t, however, see a likely downturn in aviation from today’s strength. In fact, the latest update spoke of compelling market dynamics. We heard about “long-term demand growth in our core markets and constrained supply in a consolidating industry.“

When an industry is coming out of a severe downturn, the big players really can come to the fore. They typically have the financial muscle to try to nab a bigger slice of the pie than they previously enjoyed.

Room for more growth?

I didn’t see any hard numbers on IAG’s profit outlook for 2026. But the company did set medium-term targets that include a 12%-15% operating margin. A return on capital of 13%-16% is also on the cards, with net leverage of less than 1.8x.

We were told to expect more than €3bn free cash flow after gross capex. And we should see “a sustainable ordinary dividend,” aimed to increase in line with inflation. The company has promised us the return of €1.5bn excess cash over the next 12 months. And it starts with a €500m share buyback to be completed by May.

The 2025 dividend is up 8.9%. But at 9.8 eurocents (8.58p) per share, it represents an unexciting yield of just 1.9% on the previous day’s close. It was good to see the payments restarted in 2024 after the industry-wide slump. But I doubt income investors are likely to rate IAG as a dividend cash cow any time soon.

Wider concerns?

Even with IAG shares’ gains, Analysts predict only a modest price-to-earnings (P/E) ratio of a bit over seven for the current year, based on 2026 earnings growth. Though whether that comes off is an open question in the absence of concrete guidance.

I’m a bit wary over the likely level that post-Covid flying demand really can return to. Holidaymakers’ pockets are still hit by significantly higher inflation than in 2019. And I don’t expect we’ll see Bank of England rates below 1% again for a very long time.

Couple that with rising fuel costs, and I’ll stick to my strategy of not buying airline shares. Saying that, after this set of results, I can see IAG as one to consider for investors who do favour the sector. The shares could go further yet.