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One Airline Could Deliver a ‘Nice Surprise’

The U.S. government deregulated the airline industry in 1978, and Europe followed suit in 1997, allowing airline companies to fly in markets that were once off-limits. Deregulation ignited a fierce competition among airline companies that resulted in lower airfares for passengers, but also many mergers and failures within the industry.
Photo: Fabrice Coffrini | AFP | Getty Images
The U.S. government deregulated the airline industry in 1978, and Europe followed suit in 1997, allowing airline companies to fly in markets that were once off-limits. Deregulation ignited a fierce competition among airline companies that resulted in lower airfares for passengers, but also many mergers and failures within the industry.

The airline sector has been hard hit by the crisis, but while Air France and Lufthansa are still struggling, International Airlines Group (IAG) — the holding company for the merged British Airways and Iberia — could be cruising towards clearer skies, Arnaud Scarpaci, fund manager at Agilis Gestion, told CNBC.

High oil prices, which have long impacted the sector negatively, have lost $20 over the last month, relieving the company of a great burden.

But it's the media speculationthat IAG could merge with Portuguese airline TAP that could lead the company’s share price up, Scarpaci said.

“TAP could be interestedas it is in difficulty right now … it is looking at the International Monetary Fund for cash,” Scarpaci explained. “This would allow the company to develop cheap liaisons towards South America, especially in Chile and Brazil.”

Compared to other airlines, IAG shares “are among the cheapest ones, with a price-to-earnings ratio of 5.72,” Scarpaci said, “and its PEG ratio [the ratio between a company’s P/E ratio and its annual earnings per share growth] is above 1, which is very positive,” he added.

IAG shares went down from 285 pounds ($443.9) when first introduced in January 2011 to 143.70 pounds today. “We see a potential rise towards 195 – 200 [pounds] over the next year,” Scarpaci said.

In addition to that, the company’s half-year results, due on Aug. 3, could deliver a nice surprise for investors.

“Dividends have been suspended since 2008,” when it was still British Airways, Scarpaci said. “The dividend on August 3 could be a nice surprise … at around 1.5 percent,” he added.

—By Guillaume Desjardins, Assistant Editor, CNBC.com

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Disclosures:

Neither Arnaud Scarpaci nor Agilis Gestion hold any position in IAG, Air France, Lufthansa, or TAP.

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