After 5 years of underperformance, could the IAG share price be about to take off?

Stephen Wright wonders whether the IAG share price can overcome high oil prices and staff shortages to make a comeback as travel demand surges this summer.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Aircraft wind on the sunrise sky background.

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Key Points

  • Travel demand is surging after years of pandemic-induced restrictions
  • International Consolidated Airlines faces headwinds from high oil prices and staff shortages
  • InterContinental Hotels Group does not have to deal with either of these issues

Shares in International Consolidated Airlines (LSE:IAG) have had a difficult time over the past five years. As a result, the IAG share price is down just under 70% from its June 2017 levels.

Created with Highcharts 11.4.3International Consolidated Airlines Group PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

There are some obvious reasons why the stock has performed so poorly. Chief among them is demand for flights being dampened by pandemic travel restrictions.

Bookings for 2022 are looking up, though. So could the IAG share price be about to take off?

Should you invest £1,000 in IAG right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if IAG made the list?

See the 6 stocks

Headwinds

I have my doubts. I think that IAG has two new problems to contend with, which I believe will keep its share price down.

The first is the high price of oil. Fuel is one of IAG’s major costs and higher oil prices mean that it has to spend more on fuel, weighing on its profits.

Oil prices have almost tripled in the last five years. If they remain high – as many believe they will – then IAG will be stuck with expensive fuel costs for some time.

IAG’s other major problem is staffing. Having released several staff during the pandemic, it’s now struggling to find enough people to meet the pent-up demand.

As a result, the airline is cancelling large numbers of flights. This is a big problem, since it prevents the business from taking full advantage of the returning demand for travel.

Strong demand and limited supply might allow IAG to charge higher prices for its seats. But the airline industry is notoriously competitive, which makes me think that this is unlikely.

Overall, I think that the IAG share price is likely to remain grounded, despite strong demand for flights this summer.

Better opportunities

While I doubt that the IAG share prices is about to take off, I do think that there is a way for me to profit from the surge in tourism.

The stock that I’m looking at here is InterContinental Hotels Group (LSE:IHG). I believe that the hotel chain stands to benefit from high demand for travel in a way that IAG does not.

InterContinental does not have IAG’s operational costs. Instead, hotel owners pay IHG to be a part of its network and use its branding.

As a result, IHG is unlikely to be affected by the high price of oil. Higher electricity prices might be an issue for individual franchise owners, but they’re unlikely to be a problem for the chain.

The same is true of staffing shortages. Finding people to run the hotels to keep up with demand is the job of the franchisees, not IHG.

I therefore prefer InterContinental Hotels to International Consolidated Airlines as an investment to benefit from surging travel demand. The structure of the hotel company’s business should allow it to sidestep the problems IAG will face.

From an investment perspective, IHG’s stock is much more expensive. But given the headwinds facing International Consolidated Airlines, I’m much happier owning the hotel chain at the moment.

Should you invest £1,000 in IAG right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.

And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if IAG made the list?

See the 6 stocks

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Stephen Wright has no position in any of the shares mentioned. The Motley Fool UK has recommended InterContinental Hotels Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Illustration of flames over a black background
Investing Articles

Just released: January’s higher-risk, high-reward stock recommendation [PREMIUM PICKS]

Fire ideas will tend to be more adventurous and are designed for investors who can stomach a bit more volatility.

Read more »

Investing Articles

Here’s why I’m waiting for a lower Rolls-Royce share price to buy

After a storming couple of years for the Rolls-Royce share price, this writer explains why he's holding off on making…

Read more »

Investing Articles

Could this FTSE 100 stalwart turn my Stocks and Shares ISA into a passive income machine?

Tesco has been a resilient part of the FTSE 100 since 1996. But should Stephen Wright look to make it…

Read more »

Number three written on white chat bubble on blue background
Investing Articles

These are my top 3 defensive shares to buy in 2025!

Mark Hartley considers three shares he feels could provide stability if markets are volatile -- and if he wants to…

Read more »

Investing Articles

After rising 2,081%, has Nvidia stock peaked?

Our writer likes the chipmaker's business but is less enthusiastic about the current Nvidia stock price. Here's how he's approaching…

Read more »

A pastel colored growing graph with rising rocket.
Investing Articles

This UK share is already up 27% in 2025! I think it could go even higher

The second upbeat trading update in under a month has sent this UK share higher today. Our writer explains why…

Read more »

Investing Articles

How much would an investor need in a Stocks and Shares ISA to earn £2,000 a month in passive income?

UK residents can use a Stocks and Shares ISA to build tax-free income. Dr James Fox details a stock that…

Read more »

Road trip. Father and son travelling together by car
Investing Articles

£20,000 invested in Tesla shares just 3 months ago is now worth…

Tesla shares have been on an absolute tear in recent months. Is it time for this Fool to just hold…

Read more »