Should I Invest in IAG shares right now?

Taking a quick look at International Consolidated Airlines Group‘s (LSE: IAG) share price lately, I’m beginning to spot some turbulence. Despite these blips on the radar though, this Anglo-Spanish airline holding company is up this year. As of 26 May, it is trading at around 202p, up an impressive 27% from 159p a year ago.

As an investor looking for a less volatile travel play, IAG shares might be just the ticket. Having seen its stock price crash land in February 2020 from an all-time high of 457p, could it still have plenty of runway to go?

Looking at IAG’s financials

IAG shares were the worst-performing in the FTSE 100 in 2020, and they tend to perform badly when the Footsie does.

It’s also no secret that money is tight as air travel remains restricted. In Q1 this year, IAG reported a net loss of €1.7bn. However, these losses were down almost 37% from Q1 2020. IAG’s liquidity also remains at an impressive €10.5bn, a slight increase from the same time last year. This is due to bond issuances, revolving credit facilities, and reduced costs. 

But there’s no ignoring the elephant in the room. Passenger capacity is running at 20% of 2019 levels. IAG is also anticipating a figure of 25% for the second quarter of the year.

IAG’s share price potential

Although airlines remain crippled, IAG can take some solace from a number of positives. Its cargo operations improved by 35% quarter-on-quarter, taking in revenues of €350m. Though this is but a small dent in the grand scheme of things, it’s an improvement nonetheless. What’s more, IAG has been investing in making its fleet more efficient. By dumping older plane models such as 747s, it could make profitability easier in the future. 

Also, as things stand, we are in the end game of this pandemic — touch wood. Vaccinations are proceeding in the UK at a rapid rate, with Europe beginning to catch up. This has led to a rapid reopening of the economy, with air travel returning across the globe. As one of the largest airline groups in the world by passengers carried, the only way is up from here — barring any renewed lockdowns. 

Risks to IAG shares

There are, unfortunately, too many risks to choose from to put them all down here. Even at the best of times, the aviation industry is a challenging one for investors. Volatile fuel costs, industrial action, geopolitical tensions, terrorism and the usual economic cycle are all headwinds.

What’s more, IAG’s stock price may suffer in the future thanks to its ever-increasing debt. By the end of March, net debt stood at €11.5bn, up 18% from last year. With air travel not expected to return to pre-pandemic levels until at least 2024, it will be hard for IAG to generate enough profit to actually pay this back before too much interest accrues. 

So, is IAG a buy?

Is IAG a buy? This is a genuinely tough one for me. On the one hand, I am a big fan of IAG; I believe it has weathered the pandemic well and that it is still cheap compared to all-time highs. However, its rising debt levels and the uncertainty around air travel just make it too much of a risk for my portfolio right now.