The aviation sector has endured a tough period through the pandemic. The International Consolidated Airlines Group (LSE:IAG) is no exception. Down 29% over the past year and 61% over three years, the stock has been negatively impacted by the pandemic. But what about 2022 and the outlook for the rest of the year for IAG shares?
Share price underperformance
The share price opened at 142.60p at the start of the year, hitting highs of 160p on the first trading day! However, the current price is 110p. This means that the share price has fallen almost 23%. My £1,000 theoretical investment would be worth £771.39.
How does this match up against the FTSE 100? After all, I could have simply invested in an index tracker at the beginning of the year. From a starting price at 7,400 points, the market is currently at 7,237 points. This reflects a modest year-to-date loss of 2.2%.
Unfortunately, holding IAG shares versus a more diversified index tracker would have caused me to underperform so far in 2022.
One reason for the fall so far this year has been major disruption at airports. Staff shortages have forced flights to be cancelled, resulting in lost revenue. Add into the mix higher costs of flying from the soaring oil price due to the war in Ukraine. A clash with the union regarding higher worker pay has been another headache for management.
I also need to appreciate that coming into 2022, the hangover from the pandemic was still being felt. As a result, the desire to own stock of an airline operator wasn’t high on a lot of people’s wish lists.
Looking ahead for IAG shares
From here, my focus turns to the final quarter of 2022 and the new year beyond. Some of the negative pressure has eased in the past few weeks. For example, an agreement was reached with British Airways staff for a pay increase. We’ve also seen the price of Brent crude oil drop over $10 per barrel from the end of August.
More good news for the future was highlighted in the Q2 results, with capacity for this quarter at 78% of 2019 levels. The steady tick higher from this metric gives me some confidence that the business could get back to 100% of pre-pandemic capacity within the next year.
On that basis, I think IAG shares could outperform the FTSE 100 over the next year as it bolsters the finances and increases flying hours.
The main risk to my view is that the company gets caught up with negative investor sentiment. With the UK due to go into a recession, some investors might sell growth stocks like IAG in favour of safer defensive stocks.
If that’s the case, I’ll look to buy at that point as I think any further selling could push the stock into oversold territory and make it a bargain for a long-term investor like me.
