FTSE 100 airline operator International Consolidated Airlines (LSE: IAG) has fallen as hopes of an aviation industry rebound have receded. I can see more weakness coming as 2022 progresses, too.
The risks to IAG and its rivals have grown sharply of late. The inflationary impact of the war in Ukraine is severe, pushing up fuel costs and hitting consumer spending. Airlines are also suffering an extreme shortage of staff, which caused IAG to reduce its expansion plans earlier this month.
Indeed, easyJet’s decision to pay a £1,000 bonus to new and existing staff reflects these labour pressures. Both flight activity and labour costs at flyers like IAG could suffer significantly as cabin crew shortfalls worsen.
I like IAG because of the customer loyalty that its brands like British Airways command. I also like its diversified operations, which span the lucrative transatlantic and European budget markets.
However, I think those risks I mention above — along with the long-term threat posed by extreme competition — make IAG an unattractive share to buy for my portfolio right now.
A better FTSE 100 stock to buy?
Tesco’s (LSE: TSCO) share price has performed more resolutely than IAG’s of late. This is in part because of the defensive nature of its operations. In other words, sales of food at Tesco should be more resilient than demand at non-essential retailers.
While I agree with this theory, Tesco isn’t immune to the cost of living crisis. A survey by insulation business Rockwool shows that 29% of Brits intend to reduce spending on accommodation or food as energy prices soar.
Things could get worse still if Ofgem goes through with its plans to change the price cap every three months. Total spending could keep falling and the shopper migration from established supermarkets like Tesco to discount retailers like Aldi and Lidl could accelerate sharply.
On the plus side, Tesco’s exceptional delivery operation could help sales. Grocery e-commerce is much smaller than the broader online shopping segment and therefore has much more scope for growth. But as with IAG, I think the dangers of investing in Tesco outweigh the possible rewards.
Silver surfer
I’d be much happier to buy Fresnillo (LSE: FRES) shares instead. That’s even though the growing pressure on the global economy could hit industrial demand for its silver.
Fresnillo produces both gold and silver from its mines in Mexico. I believe values of these assets could soar in the months ahead as inflationary headwinds grow. Precious metals are popular with investors when rocketing inflation prompts worry over declining values of paper currencies.
Shocking data from Germany this morning showed year-on-year wholesale prices soar 23.8% in April. This was the largest increase since records began in the early 1960s.
The inflationary threat is growing across the globe too as the Russia-Ukraine war drags on and Covid-19 lockdowns hit Chinese supply chains, too. I think Fresnillo is an ideal FTSE 100 share for me to buy in this climate.