I’ve been keeping a close eye on International Consolidated Airlines Group (LSE: IAG) shares of late. The conflict in Iran has affected most airlines and the owner of British Airways, known as IAG, is no exception – the share price fell 25% in less than a month! But the huge drop has also made the stock one of the cheapest-looking on the FTSE 100 with a price-to-earnings ratio of six at its lowest.

Am I looking at a brilliant bargain here? Or is the sell-off justified? One possible answer came in the last week when there was another twist in the tale…

Why the big news?

What happened? In short, IAG announced ticket price hikes were on their way. The elevated cost of jet fuel has persisted and the hedging of these costs can only protect airlines for so long. They’re running out of runway, so to speak.

Why is this big news? Well, it’s a strong sign that this whole episode is not going to just blow over. And when prices get raised, consumer behaviour often changes. How many passengers are going to opt for a domestic holiday or a lower-cost airline as a result? Lower demand for aeroplane tickets is a real risk for the company.

The conflict has already had meaningful changes to airlines. The early data suggests folks are avoiding far-flung destinations – the Middle East being a central hub to Asia and Australasia. That’s not even mentioning the cancellations to big travel destinations like Dubai.

It’s worth pointing out that this is coming just as airlines were starting to recover from the pandemic. COVID-19 took a wrecking ball to the sector. Inflation and a cost-of-living crisis came shortly after. Now 2026 has brought yet more woe.

All sounds pretty bad, right? Well, maybe not...

Is it a buy?

While there is a fair bit of doom-mongering about the possible problems on the horizon, there is nothing concrete to say operations will be massively impacted. For one, the latest forecasts suggest earnings and revenue are going to keep rising in the years ahead. And while no one can predict the eventual outcome of the current Middle East issues, a swift resolution is not outside the bounds of possibility.

And if the prognosis is indeed good, then it’s hard to look at this as anything other than a bargain. As mentioned, IAG is trading at just six times earnings – around a third of the FTSE 100 average. That means every share that is bought comes with around three times more profit than a typical Footsie stock. Buying cheap is at the heart of Warren Buffett’s ‘value investing’ approach. I think it worked out well for him.

The last word? There are real risks here but there is an opportunity too. I think IAG shares are worth considering.