IAG share price slowly forms an interesting bullish pattern

IAG (LON: IAG) share price has pulled back in the past three straight weeks as traders pay attention to the happenings in the aviation sector. The stock was trading at 150.90p on Thursday, lower than last year’s high of 174.10. 

Airlines brace for a new normal

Airline stocks have not been the best performers in the past 12 months even as global demand has jumped. IAG, the giant company that owns British Airways and Vueling, has remained in a consolidation phase in this period. 

Other airlines like Lufthansa, United Airlines, and Wizz Air have all retreated. The best-performing airline stocks are Ryanair and EasyJet, which have risen by over 35% and 25%, as shown in the chart below.

Airline stock prices

IAG stock price has underperformed despite strong execution by the management. In its most recent results, the company said that its total revenue rose from €16.68 billion in the first nine months of 2022 to €22.2 billion. Third quarter revenue also rose to €8,6 billion from €7.3 billion.

IAG also reported strong profits and good progress on debt reduction. Its nine-month profit after tax jumped from €199 million in 2022 to €2.1 billion. It also reduced its total borrowings to €17.2 billion to €19.9 billion.

There are signs that IAG will continue doing well in 2024. In a recent note, IATA said that it sees total airline revenue surging to $964 billion while total net profit will be over $25.2 billion. The association also expects that revenue growth will rise at a faster pace than expenses. IAG will likely benefit from this theme since it is one of the biggest airlines in the world.

IAG is also expected to benefit from lower jet fuel prices. Data by IATA shows that the average jet fuel has dropped to $285.4 this year from last month’s peak of $292. This trend will likely continue if oil prices maintain their downward trend. Saudi Arabia recently slashed its oil prices, triggering a 5% retreat in global prices. As shown below, global jet prices have been dropping.

The other possible catalyst for IAG and other airlines is that inflation is moving in the right direction. After peaking at 9.1% in 2021, US inflation has retreated to 3.1%. The same trend is happening in other key markets for IAG. 

Lower inflation and interest rates, coupled with improved airport operations, mean that IAG’s fundamentals are solid. The key risk that the company is facing is competition from both Western and Eastern airlines.

IAG share price forecast

IAG chart by TradingView

The daily chart shows that the IAG stock price has been under pressure in the past few weeks. This retreat has seen it drop below the 50-day and 25-day Exponential Moving Averages (EMA). On the positive side, the stock has formed an inverse head and shoulders pattern, which is a popular bullish sign.

Therefore, there is a likelihood that the stock will bounce back in the coming weeks. This rebound will likely be sparked by the upcoming earnings season. Several large American companies like United, Delta, and Southwest will publish their results in the coming weeks. IAG, on the other hand, will release its results on February 29th.