International Consolidated Airlines Group (LSE:IAG) shares are up 116% over five years. This means £10,000 invested five years ago would be worth £21,600 today. That’s obviously a pretty decent return, but investors would have needed to endure a lot of volatility. In fact, five years ago, the stock started to rally heavily as we emerged from our first lockdown. The issue was, as investors soon found out, this wasn’t the last lockdown and social distancing was here to stay.

It’s worth noting as well that an investment made in late May 2020 would have been in the red by 50% on several occasions over the past five years. The stock slumped around October/November 2020 as more Covid precautions wreaked havoc on airlines. And then there was Russia’s invasion of Ukraine. Just as epidemiological conditions were improving, Russia’s war sent aviation fuel prices surging.

What’s next?

The aviation sector is forecast to see impressive growth through 2030,. It will be driven by strong leisure travel demand and a steady recovery from the pandemic. Global revenue passenger kilometres (RPKs) are expected to rise by over 25% from 2025 to 2030. That means reaching new highs as air travel demand surpasses pre-pandemic levels. This is certainly a good sign for airlines.

In the near term, lower fuel prices are helping airlines improve margins. And easing inflation and resilient consumer spending support ongoing demand. However, uncertainty remains due to US trade policy and tariffs. This could disrupt business travel, aircraft deliveries and impact airline costs, particularly for transatlantic operators like IAG (as it’s more commonly known). 

Nonetheless, Europe is expected to see continued growth in short-haul leisure travel, with the UK remaining a top outbound market. Despite supply chain and geopolitical concerns, the sector’s outlook is positive, underpinned by expanding fleets and a buoyant tourism market.

Is IAG the best exposure?

Firstly, IAG offers broad exposure to the aviation sector, with a diversified portfolio spanning British Airways, Iberia, Aer Lingus, and Vueling. This may appeal to more conservative investors.

From a valuation perspective, the forward price-to-earnings (P/E) ratios for 2025, 2026, and 2027 are 6.4 times, 6.2 times, and 5.4 times respectively, which are well below both the global airline industry average (around 9.3 times). 

This suggests IAG shares are attractively valued, especially given the group’s scale and market reach. However, debt is an important issue. While it may appear cheaper than some peers, it currently has a net debt position of €7.5bn. Positively, this is projected to fall to €4.2bn by 2027, but it needs to be accounted for in the valuation. There’s also a dividend to highlight. The yield is forecast to rise from 2.5% in 2025 to 3.3% in 2027.

While IAG’s valuation is undemanding, some investors may find even cheaper options among smaller or more focused carriers. It’s certainly worth considering. However, personally, I’m refocusing my attention on Jet2, which is now my largest holding. I had also wished to buy shares in Copa Holdings, but sadly I don’t have access through my brokerage.