Here’s why the IAG share price is at risk of a major pullback
- The IAG share price has declined sharply in the past few days.
- The decline is mostly because of the rising fear of margin compression as oil prices rise.
- The stock could keep falling in the near term.
The IAG (LON: IAG) share price collapsed by more than 3% as worries about margins rose. Investors are also waiting for key quarterly results from some of its American peers. The stock declined to 175p, which was about 12% below the highest level this month.
British Airways margin issues
The IAG share price has had a great few weeks. The stock has risen by more than 25% from its lowest level in September.
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This performance was mostly because most analysts expect that demand for air travel will keep rising in the coming months. In particular, there are signs that transatlantic travel will restart in November. This is notable since these flights are usually its most profitable.
However, there are also concerns about the company’s margins as the price of crude oil rises. On Monday, the price of Brent jumped to $83 while West Texas Intermediate (WTI) soared to more than $80. This trend will translate to higher jet fuel prices. This is notable since jet fuel is the biggest cost for many airlines.
These concerns were exacerbated last week when Delta Airlines delivered its results. While the company turned a profit in the third quarter, the management warned that high fuel costs will affect its margins.
The same outlook will likely be repeated this week when other big companies publish their results. United Airlines will publish its results on Tuesday while Southwest and American Airlines will publish their results on Thursday.
While these companies operate in different regions from IAG’s brands, their results will send a signal about the state of the aviation industry.
The IAG share price is also reacting to news that British Airways has the blessing of the airline pilot to start a new budget airline.
IAG share price forecast
The four-hour chart is not looking good. The IAG share price has been in a bit sluggish lately. And on Monday, the stock managed to move below the key support at 171p, where it has struggled moving below several times before.
The stock has even moved below the 25-period and 15-period moving averages while the Relative Strength Index (RSI) has formed a bearish divergence. Therefore, while the outlook for the aviation industry is bright, there is a likelihood that the stock will have a major pullback in the near term.
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