International Consolidated Airlines Group (LSE: IAG) shares are having a week! The last seven days have caused a crisis for many an airline, with the skies in or near the Middle East becoming instantly dangerous for travel. Aside for the terrible humanitarian nature of the war, billions have been wiped out on markets across the globe in the wake of the conflict in Iran.

How much was the damage for IAG? The share price dropped from 457p to 352p. That’s a drop of 23.1%, wiping out £5bn in market capitalisation in one fell swoop. A £6,000 stake has reduced to £4,600 in little longer than the time it takes to play a Test match. Was this a justified reaction to recent events? Or has a wild overreaction made for a great buying opportunity for investors? Let’s explore.

Big risks

The primary reason the conflict is affecting IAG so much is that it is not localised to Iran, but is taking place across the region. Notably, drones have been attacking Dubai and other important travel hubs. British Airways (one of IAG’s airlines) has not been able to fly any planes to Dubai, Abu Dhabi, Tel Aviv, or a number of other airports in the region.

It is hard to see how the conflict will be resolved quickly. This really underscores what many of us writers have been saying about airlines since the pandemic — that globalised travel is extremely fragile. This is a huge risk factor for investors in airline companies like IAG and is represented in the cheap valuations of such companies.

Cheap shares

What might we expect from the stock going forward? Well, the bull case would be that normal service resumes fairly quickly and that we’re simply at the moment of maximum panic. There was a lot of pessimism around ‘liberation day’ last year – then that turned out to be the best buying opportunity for years.

It’s also worth pointing out how cheap IAG shares look. The firm trades at around six times earnings, which is an absurdly cheap price to pay. The average of the FTSE 100 is around 18 times earnings. So for each pound of profit that IAG makes from its airfares, an investor is paying only a third what they might have to for other Footsie companies.

And in spite of the cancellations in recent days, the number of flights and passengers worldwide has been on an unchanging upward trend. The effects of globalisation mean more people are flying and more often. That’s a boon for any airline.

Overall? This is a stock that looks attractive on fundamentals but comes with a fairly hefty dose of risk. I’d say it’s worth thinking about for an investor who understands the unpredictablitiy of the situation.