International Consolidated Airlines Group (LSE: IAG) shares are flying again. As the FTSE 100 rebounded on Friday (17 April), following reports that the crucial Strait of Hormuz trade route had reopened, the British Airways owner led the charge.

IAG, as it’s also known, ended the day 6.19% higher, worth £619 for somebody with £10,000 invested. Only gold miner Fresnillo did better. Was I surprised? Not at all. Because that’s what IAG does. It’s right on the front line of market volatility, and I can’t see any sign of that changing.

In the pandemic, it was absolutely hammered by global lockdowns. Its global fleet of aircraft was grounded, wiping out most of its revenues, but it still had to meet high fixed costs, such as aircraft leasing, maintenance, staff salaries and debt servicing. It also had to refund passengers for cancelled flights.

Bumpy FTSE 100 growth play

In 2020, IAG reported at €7.4bn operating loss. It only survived by slashing more than 10,000 jobs and borrowing like crazy, with net debt hitting €12bn. But survive it did, and when air travel took off, the shares flew. Net debt is down to €6bn today, but investors have learned their lesson. The airline sector is exposed to a world of risk.

Airlines are vulnerable to pandemics, extreme weather, volcanoes, air traffic control strikes, fuel prices, recessions and of course, war. They have almost no control over any of them.

IAG has duly been hammered by the Iran war, which has forced British Airways to cancel or reroute flights to major hubs like Dubai, Abu Dhabi and Tel Aviv. Jet fuel costs have soared and if we get shortages this summer many more flights could be cancelled, smashing revenues. Hence the outsized relief rally on Friday.

This may well have been overdone. We can’t say for sure whether Hormuz is open right now. IAG could give up all its recent gains next week, or it could fly to new highs. It’s anybody guess.

Dirt-cheap valuation

Despite all the ups and downs, the share price has done brilliantly. It’s up 62% in the last year, and 108% over five years. Dividends have been restored, and the trailing yield is 2.1%.

I bought the stock during another recent bout of turbulence, when Donald Trump’s ‘liberation day’ tariffs were rattling global stock markets. I’m glad I did, because the moment Trump announced a pause, IAG shares rocketed. 

They look staggeringly cheap today, with a price-to-earnings ratio of just 6.22. Don’t assume that makes them a no-brainer bargain though. They may remain cheap as investors demand a big valuation cushion in return for the added risk of holding them.

This is a stock to buy when the news is bad, in my view, rather than good. With a long-term view, IAG shares are worth considering, for investors who can withstand regular bouts of short-term volatility. If IAG is too hot to handle, don’t worry. I can see more brilliant FTSE 100 bargains out there, and most are nowhere near as volatile as this one.