The IAG (LSE: IAG) share price has had a pretty rough ride over the past few months. Since it plunged over 60% in 2020, IAG seems to have struggled to gain any momentum and over the past year, the shares have fallen 28%.
In 2022 the trend has been similar: year to date the shares are down 12%. However, with global travel restrictions easing by the day, does this mark the perfect time to get my hands on some cheap IAG shares? Or should I steer clear of the UK airline? Let’s take a look.
Headwinds for the IAG share price
Just as pandemic-related travel restrictions seem to be easing, war in Europe has begun. Virtually all flights into Russia and Ukraine have been stopped, and hence airlines like IAG have taken a hit.
Another threat that has stemmed from this tragic conflict is the rising price of oil. Just a few months ago, oil prices were sitting around the $80 per barrel mark. Today, that number has exploded to over $110. The rising oil price has led to fuel prices skyrocketing across the world, raising IAG’s costs and placing pressure on its income.
Finally, rising interest rates around the world could be bad news for IAG. As rates rise and economic growth slows, people are less likely to fork out money for luxuries like holidays.
Considering all three of these factors does make me worry over the future of the IAG share price
Reasons to be cheerful
While there are risks, there are also some positives I see for the stock. Firstly, excluding Russia and Ukraine, the world’s travel routes are beginning to open up again. In the first week of 2022, there were 139,422 flights in Europe. This is a near-100% increase from 71,738 during the same week in 2021.
These encouraging figures have filtered into IAG’s results. Its 2021 Q4 passenger capacity figure was at 58% of 2019 levels. While this might not sound great, it marks an impressive rise from the first quarter, which saw just 19% of 2019’s footfall. This translated into an 8.3% rise in year-on-year revenues that totalled €8.4bn. The firm still reported an operating loss of €2.7bn, but the rise in revenues does highlight that IAG is getting back on its feet.
The shares also look cheap to me. IAG currently trades on a price-to-sales (P/S) ratio of just 0.93. Competitors easyJet and Ryanair trade on P/S ratios of 1.79 and 4.3 respectively.
What I would do now
Although travel numbers look encouraging, there’s no guarantee that this will boost the IAG share price. Looking at the concrete facts, the firm is loss-making, oil prices are rising, and the macroeconomic climate is highly volatile. For these reasons, at the current IAG share price, I won’t be adding any of the stock to my portfolio.
