IAG’s share price fell 2.6% on Thursday as crude oil prices resumed their rally, raising concerns about higher jet fuel costs. The stock dropped to 420p, its lowest level since September 18 and about 15% below its highest point this year. The retreat could extend in the coming days as major airlines release their earnings reports, which should shed more light on the state of the aviation industry.
IAG stock drops as crude oil prices jump
IAG, the parent company of top companies like British Airways and Aer Lingus, dropped as crude oil prices jumped. Brent, the global benchmark, jumped to $104.10, its highest level since September 21. The West Texas Intermediate (WTI) crossed the important resistance level of $90.
Oil prices are rising as Iran continues striking ships in the region. The most recent one happened in Qatar, with the UKMTO saying that it had casualties. At the same time, The Atlantic reported that Trump was considering launching attacks against Iran before the midterm election.
The rising oil prices will lead to higher jet fuel costs. IATA data shows that the average jet fuel price stands at $187 a barrel, up by over 1% from a month earlier and 108% above where it was in the same period last year.
IAG, unlike its American peers such as Delta Air Lines and Southwest, is less affected by the rising crude oil prices because it uses hedging strategies. It runs a layered, rolling hedging program that builds cover progressively over a multi-year horizon. It uses swaps and options on jet fuel and Brent and to hold the hedge ratio high for the nearest period and lower further out.
The company has also used its market share in key routes to hike prices. Its last earnings report showed that its revenue rose to €16.06 billion, up modestly from €15.9 billion in the same period last year. Its profit after tax dropped to €1.03 billion from €1.3 billion a year earlier.
The next key catalyst for IAG shares will be earnings by its top American peers like Delta Air Lines, United Airlines, and American Airlines. These results will provide more hints on the aviation industry. IAG itself will publish its numbers on November 6.
IAG share price technical analysis
IAG stock chart | Source: TradingView
The daily chart shows that the IAG stock has slumped from a high of 493p in June to the current 421p. It has dropped below the 38.2% Fibonacci Retracement level and the descending trendline that links the highest swings since July 27.
IAG has dropped below the Major S/R pivot point of the Murrey Math Lines tool and the 50-day moving average. It is hovering slightly above the key support level of 417p, the lowest point in July and August.
Therefore, the stock will likely continue falling, potentially to the Ultimate Support level of 375p. This view will be confirmed if it drops below the support level of 406p.
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