At 118p, are IAG shares a buying opportunity? 

The airline industry is finally experiencing uninterrupted travel, having been hampered since March 2020. So, is now the time to buy IAG shares?

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IAG (LSE: IAG) shares have struggled ever since the onset of the Covid-19 pandemic. Prior to March 2020, the shares were trading well above the 400p level. Since then, they have only surpassed 200p per share a handful of times.

In 2022 so far, IAG shares have fallen 25%. Over a 12-month period, the shares are down 39%. However, as the travel sector edges towards full capacity flying, is now the time for me to buy IAG shares? Let’s take a closer look.

Positive results

IAG released its Q1 2022 financials at the end of March this year. They highlighted the strong return to pre-Covid flight numbers, with passenger capacity at 65% of 2019 levels. This was a 7% rise from the previous quarter. In addition, IAG expects that in Q2 of this year, this number will jump up to 80%. Q3 and Q4 predictions are 85% and 90% of 2019 capacity levels. This highlights the strong year that could be ahead of IAG. Of course, forecasts can change based on future developments.

Revenues almost quadrupled and losses fell by over €300m compared to Q1 2021. The firm also stated that it expects to return a profit by Q2 2022, which is great news. If the Q2 2022 results – due to be issued on 30 June – can pull through on this promise, then IAG shares could be in a great position to rise.

Not out of the woods yet

One big risk I see for IAG in the near future is rising costs. The price of oil has skyrocketed in recent months, and as a consequence, fuelling costs have increased dramatically. Inflation is also increasing the cost of living which could mute consumer demand. Rising costs are the last thing IAG needs when it’s battling to return to profitability.

The firm is also facing staff shortages after being forced to release thousands of employees to cut costs during the pandemic. This is constraining its ability to meet the high consumer demand and as a consequence, flights are being cancelled.

A final risk to IAG shares is a recent dispute between internal management. The company is facing criticism after a proposal for CEO Luis Gallego’s pay package to be substantially increased. Glass Lewis, a major proxy voting advisory service, recommended that investors vote against the pay policy. Shareholder backlash can lead to pessimism surrounding the stock and could lead to a further fall in the IAG share price.   

Is now the time to buy?

At 118p, I like the look of IAG shares for my portfolio. However, there are some risks that the airline giant must contend with, which will place pressure on the firm’s move back to profitability. I am going to wait for the Q2 results before I make my move. If they contain profitable results, then I will seriously consider adding some IAG shares to my portfolio.  

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.

Dylan Hood has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

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