IAG share price: British Airways parent is facing headwinds

IAG (LON:IAG) share price has moved in a tight range in the past few months as the market assesses the company’s recovery. After soaring to the year-to-date high of 173.60p in January, the shares have retreated by over 15%.

Airline earnings ahead

IAG and other airlines are having a good year as the global travel industry rebounds. According to IATA, traffic in July jumped by 26.2% from the same month in 2022. It then soared by 28.3% in August, with domestic and international traffic jumping by double digits.

IAG, as one of the leading domestic and international companies in the industry, is benefiting as the sector recovers. The company’s first-half results showed how well the company is doing. 

Its total revenue jumped to €13.58 billion from €9.35 billion in the same period in 2022. Revenue in the second quarter soared to €7.6 billion. Its profits also jumped, with net income soaring to €921 million in the first half of the year.

Investors believe that IAG strong performance continued in the third quarter. The median estimate of its operating profit is €895 million, with the highest forecast being €1.09 billion. 

Still, IAG is facing numerous challenges that could affect its business. The biggest challenge is that the cost of operations is rising as jet fuel prices jump. As I wrote in this article on EasyJet, jet fuel price has soared to $960.45 per ton. American Airlines cited fuel costs when it downgraded its guidance.

The other challenge is that employee costs are set to rise. According to Sky, British Airways is considering hiking pilots pay to prevent a strike. While avoiding a strike is important, it means that IAG’s margins will be affected.

IAG share price forecast

IAG chart by TradingView

Regular readers know that I am not a big fan of airline stocks because of their boom and bust cycles. Also, I am usually inclined to support EasyJet, a popular regional airline with one of the strongest balance sheets in the region.

The daily chart shows that the IAG stock price topped at 173.60p in January and August. Since the stock has dropped below the 50-day moving average and the key support at 149.20p, the lowest point in July. 

IAG has also formed what looks like a double-top pattern. Therefore, I suspect that the shares will likely continue falling as sellers target the key support at 140p. A drop below that price will see it crash to 127.95p (March low).

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