IAG’s share price has faced intense turbulence this year as the war between the US and Iran has pushed costs significantly higher. The stock dropped to a low of 394p on Friday before bouncing back to 411p today. The weakness will likely persist, as the possibility of renewed strikes in the Middle East remains.
Airlines are warning of rising jet fuel prices
Top American airlines are warning that price hikes are not enough to boost their profitability. In its recent statement, Delta Airlines lowered its full-year earnings after releasing its third-quarter results, which came short of expectations. It now expects that its adjusted earnings will be between $5.10 and $5.60, down from the previous estimate of between $6.50 and $7.50.
United Airlines also delivered a similar warning. It now estimates that a gallon of jet fuel will cost about $4.80 in the final three months of the year, higher than the expected $3.90. Also, the company said that fuel prices are rising at a faster pace than its fare hikes.
These numbers mean that IAG’s business is also facing these challenges because jet fuel prices have remained at an elevated level. IATA data shows that the average jet fuel has risen to $196.70, up by 6.6% from the previous month. It has jumped by almost 120% in the same period last year.
IAG, like other airlines, has responded by hiking prices across its brands, which include companies like British Airways and Aer Lingus. At the same time, unlike its US competitors, IAG uses some hedging strategies, making it less exposed to rising jet fuel prices.
READ MORE: IAG share price eyes crash to 400p as jet fuel costs escalates
IAG faces some major risks ahead
IAG stock faces some major risks ahead. The most notable one is that jet fuel prices will continue rising in the near term. Oil will likely jump as the midterm elections near, a move that will push President Donald Trump to restart his attacks against Iran.
A restart of the US-Iran war will likely be more severe than the last phases. Iran has warned that it will respond by launching attacks against major targets, including airports and oil infrastructure. Such a move will push oil and jet fuel prices higher.
The next important catalyst for the stock will be its earnings report, which will provide details about its business in the third quarter. Analysts expect the results to show that its operating profit dropped to 1.81 billion euros in the quarter from 2.08 billion euros last year.
IAG share price technical analysis
IAG stock chart | Source: TradingView
The daily chart shows that the IAG stock price has slumped from a high of 492.7p in June to the current 410p. It bottomed at 394p, which coincided with the 50% Fibonacci Retracement level.
The stock has formed a descending channel. Also, the stock remains below the 200-day Exponential Moving Average (EMA) and the Supertrend indicator. Therefore, the stock will likely remain under pressure in the foreseeable future, potentially to the key support level of 394p. A drop below the support level of 394p will point to more downside to 350p.
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