Like many investors, I bought IAG (LSE:IAG) shares towards the beginning of 2022, expecting that this year would be better than the past two.
However, it certainly hasn’t gone as many expected. So, let look at why IAG shares are down and assess whether now is the right time for me to buy more.
What’s behind the falling share price?
The IAG share price rose above 175p a share in February before Russia invaded Ukraine. In the weeks following the invasion, the share price tanked.
While IAG, and the airlines operating within it, like British Airways and Iberia, were largely unaffected by the invasion, the share price fall reflected negative market sentiment and a related rise in fuel prices.
However, things have got worse. “Travel chaos” has engulfed the aviation industry, with the UK and the EU most impacted. Thousands of flights have been canceled at Europe’s biggest airports.
Airlines and airports have struggled to cope as the travel industry recovers from its Covid-19-induced slump. Shortages, both in terms of cabin crew and those on the ground, have caused widespread cancelations.
With 650 British Airways flights cancelled in July, a spokesperson for the airline said on Tuesday that the aviation industry was going through the most “challenging period in its history“.
Consecutive negative economic forecasts have also hammered the travel industry. The cost of living crisis will undoubtedly reduce holiday spending.
Recent performance
The share price is down 15% over the past month. This is largely reflective of the state of the civil aviation industry. In recent weeks, several airlines have revised their targets for the year downward.
IAG has said that it expects capacity for Q2 to be around 80% of pre-pandemic levels. It said that Q3 should reach 85%, and Q4, 90%. So, it’s clear that the aviation industry will recover slightly slower than expected.
The most recent quarter (Q1 – March 31), demonstrated that things were moving in the right direction for the airline. Passenger capacity was up 7%, to 65% of 2019 levels. Revenues almost quadrupled and losses fell by over €300m compared to the same period in 2021.
Navigating headwinds
There’s huge pent-up demand for travel and with time, the aviation industry will overcome the issues we’re seeing today.
But, there are still challenges. IAG has a hedging strategy that has protected it against soaring fuel costs. However, oil prices have remained stubbornly high since Russia’s invasion of Ukraine. IAG won’t be protected from these higher fuel costs forever.
No one is quite sure what will happen next with regards to oil prices. Citi Group warned today that oil may collapse to $65 a barrel amid recession fears. Meanwhile, former Russian president Dmitry Medvedev predicted that oil could extend to $300-$400 a barrel.
There are also going to be concerns about rising Covid-19 rates and the impact of recessions around the world.
Despite this, I think the current share price offers a good opportunity for me to increase my holdings in IAG and lower my average buying price. After all, I’m investing for the long run.