International Consolidated Airlines (LSE:IAG) is one of the most volatile FTSE 100 shares right now. It’s moving sharply in response to choppy oil prices, which are themselves tracking events in the Middle East.
At 396.1p per share, IAG’s share price has gained ground after plunging at the start of the war in Iran. But it remains 6.3% lower than it was before the conflict began. And I fear the British Airways owner could be about to slide again…
Surging costs
Airlines are among the most vulnerable shares during this Middle East crisis. With oil prices spiking due to supply disruptions, these businesses face a sharp rise in costs. Fuel makes up roughly a quarter of their operating expenses.
Jet fuel prices have more than doubled since the start of the conflict, and were last around $1,530 per tonne. This is even more of an issue as many long-haul routes are covering larger distances by avoiding some Middle East airspace.
But it’s not just higher costs IAG needs to worry about. It’s also facing the prospect of not having enough fuel to get its planes off the ground. On Friday (10 April), the Airports Council International Europe (ACI Europe) told the EU that shortages could emerge within three weeks if the Strait of Hormuz remains closed. That’s according to the Financial Times.
Are there other risks?
The longer the conflict persists, the greater these risks become. But this creates another huge problem — more route disruptions, as key Middle Eastern destinations are avoided.
Flights between Amman, Abu Dhabi, Bahrain, Doha, Dubai, and Tel Aviv have all been impacted in recent weeks. And though IAG plans to restart some in the next several weeks, an escalation of the conflict could scupper these plans.
It’s already warned of “further changes to our flying schedule” on Friday, announcing plans to trim the number of flights to Doha, Dubai, Riyadh, and Tel Aviv from pre-war levels.
Are IAG shares a buy?
Add in the impact of the war on broader inflation and economic growth, and I think things could get very tough for IAG and its shares. Holidays are among the first things consumer trim back on when they’re feeling the pinch. This could potentially prompt the company to slash its profit forecasts, with knock-on effects for the share price.
It is worth noting, however, that the popularity of brands like British Airways could help IAG outperform the broader sector. And with its budget airlines Aer Lingus and Vueling, it might also benefit if cash-strapped customers switch down from premium- and mid-tier operators.
Yet, for me, the risks of owning IAG shares are too high in the current climate. And especially when you consider that fierce competition is also putting the company’s sales and profit margins under huge pressure. On balance, this is a FTSE 100 share to think about avoiding.
