IAG share price forecast: what next for British Airways parent after earnings?

International Consolidated Airlines (IAG) share price dropped to 414p and then bounced back after the company published mixed financial results amid the ongoing US-Iran war. IAG was trading at 435p at the time of writing, down by 12% from its highest point this year.

IAG ditches its growth plans

IAG, the parent company of British Airways, Aer Lingus, Iberia, and Vueling, reported strong financial results. Its revenue rose by 1% to €16 billion in the year’s first half of the year. Its second quarter revenue rose modestly to €8.8 billion.

However, the company’s operating profit dropped by 14.4% to €1.6 billion, while its profit after tax fell by 20% to €1.03 billion. This retreat happened as the cost of fuel jumped amid the US-Iran war. Indeed, IATA data shows that the average jet fuel price jumped to $160, up by 23% from the previous month. It has jumped by 77.8% from the same period last year.

Most importantly, the company’s free cash flow jumped to €2.9 billion in the year’s first half from €2.09 billion in the same period last year. This improvement was because of the timing of its fleet deliveries and last year’s payments to the tax authorities. IAG has offset the rising costs by hiking prices and by hedging its fuel costs. 

The company’s business has benefited from its North American business, which accounts for about 30% of its business. It is then followed by its South American business, thanks to Iberia, British Airways, and LEVEL. Its other key business is the European and domestic businesses.

Most notably, IAG’s capital-light loyalty business continued its growth, which is expanding by about 10% YoY. It hopes to get to €1 billion in operating profit in the medium term. The business grew by 3.4%, with its operating profit rising to €239 million.

IAG continued to boost returns to shareholders. It has already completed the €800  million of the €1.5 billion of the share buyback it announced in February. 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.”

IAG share price wavered after management reduced its capacity. It noted that around 57% of capacity has been booked in the second half and the management expects that full-year capacity will be flat. 

IAG share price technical analysis

IAG stock has pulled back in the past few weeks, falling from a high of 492p in June to a low of 414p today. Its lowest level was notable as it coincided with the ascending trendline that connects the lowest swings since March 23rd. 

The price was also slightly higher than the 200-day Exponential Moving Average (EMA), a sign that the uptrend is continuing. It has now retested the Strong pivot reverse level of the Murrey Math Lines tool.

The stock is also slowly forming a bullish engulfing pattern. Therefore, the stock will likely continue rising, potentially to the year-to-date high of 492p, its highest point in June this year. A drop below today’s low of 414p will invalidate the bullish outlook.