International Airlines Share News (IAG)

(Sharecast News) - Major underperformance by International Consolidated Airlines shares so far in 2019 has led RBC Capital Markets to upgrade its stance on the British Airways and Iberia owner.IAG has underperformed European network airlines by 20%-25% since the start of the year and, even though RBC acknowledges the uncertain economic outlook it felt the shares now took this into account but do not price in nothing from investing margin and capex in an improved product, especially at BA.Analysts therefore think the long-term potential for a £10-£12 share "has been fully overlooked" and, with close to 5% dividend yield support, "investors with a view beyond H1-2019E delivery should now revisit the shares".In the short term, there is likely to be more turbulence.RBC analysts see lower margins and weaker free cash flow after pensions allowances. What's more, "the credibility of IAG management under question by investors" for the first time since Iberia's then ballooning losses in 2012."The UK GDP outlook remains risky and potentially muted if the country drifts for an extended period in 'no-man's land' between Brexit and EU membership. This leaves a muted profit outlook for 2019E. Though we see counterbalancing supply reductions as likely, a weak UK corporate outlook risks profit shocks - as airline PBT margins tend to follow PMI trends."On the plus side, the analysts think that profit regrowth without long-term product destructive cost cuts "will be key" to re-establishing credibility and the external factors will eventually dissipate,