IAG share price has slumped to a crucial support level as investors reacted to the rising jet fuel costs. It dropped to 419p on Wednesday, a few points above 414p, its lowest level in July. It remains 15% below its highest level this year.
Jet fuel prices are hitting IAG’s margins
IAG, the parent company of British Airways, Aer Lingus, and LEVEL, is being affected by the rising jet fuel prices. The most recent results showed that its revenue rose by 1% in the year’s first half to €16 billion, while its operating profit fell to €1.75 billion from €1.8 billion in the same period last year. Its operating margin dropped slightly to 10.9%.
This trajectory will likely continue now that crude oil prices are rising, with Brent sitting above the crucial resistance level of $100. WTI has soared to $95, leading to higher gasoline, diesel, and jet fuel prices.
Data shows that jet fuel prices rose to $171 last week, 9% higher than last week, and 8.9% from the same period last month. This rally will likely continue now that the situation between the US and Iran is escalating. At the same time, the crisis between Ukraine and Russia and between Saudi Arabia and Yemen is accelerating.
IAG and other carriers have been passing rising jet fuel costs on to travelers through higher fares, a move that hasn’t dented demand so far. When it released results, the airline group had already booked around 57% of second half capacity.
Management is aiming to claw back roughly 60% of the added fuel expense through a mix of fare increases and cost cutting. IAG also has an edge its US competitors lack: a hedging program that cushions the blow from fuel price swings. In a statement, the CEO said:
“We are well-positioned to deal with these near-term headwinds with a diverse portfolio of world-class brands in large and attractive markets; industry-leading margins; significant free cash flow and a strong balance sheet; and attractive shareholder returns.”
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IAG share price technical analysis
IAG stock chart | Source: TradingView
The daily chart shows that the IAG stock price has been in a downward trend in the past few months. It has dived from a high of 493p in June to the current 419p. This price is slightly above the crucial support level of 417p. It has failed to move below this level several times since July.
The stock has dropped below the 38.2% Fibonacci Retracement level. It has also dropped below the 50-day Exponential Moving Average (EMA). Also, the two lines of the Percentage Price Oscillator (PPO) has dropped below the zero line.
Therefore, the stock will likely continue falling, a move that will be confirmed if it moves below the support level of 417. A move below that level will point to more downside, potentially to the psychological level of 400p.
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