IAG share price analysis as jet fuel costs surge: buy or sell?

The International Consolidated Airlines Group (IAG) share price has slumped in the past few weeks since the US-Iran war started in February as c,oncerns about soaring fuel costs rose. IAG stock dropped to $349 on Monday, down by 25% from its highest point this year, lagging behind the FTSE 100 Index, which has dropped by 8.25% from its highest point this year.

Soaring jet fuel prices may impact IAG’s profitability 

IAG and other airlines have come under intense pressure since February 28 when the US and Israel launched an attack against Iran that has escalated in the past few weeks.

The war took a new twist during the weekend after Ansah Allah, popularly known as Houthis, announced that they were entering the ongoing war in Iran. The group has already launched attacks against Israel, and there are chances that the group will start threatening transport in the Red Sea.

These attacks will have a major impact on the energy market as Saudi Arabia and other Middle East countries have been using this route to avoid the closure of the Strait of Hormuz.

At the same time, the US has accumulated thousands of troops to the region, a move that has raised concerns about an invasion. Iran has warned that it may hit energy infrastructure in the region, which will push oil prices higher, with Societe Generale predicting that Brent will jump to $125 in April.

A report compiled by IATA shows that the average jet fuel price jumped to $197 last week, up by 105% from the same period last month. As a result, airlines are among the most affected companies as the rising energy prices will affect its margins.

Jet fuel price chart | Source: IATA

At the same time, there are concerns about flight cancellations, especially in the Middle East, where travel has largely dried up in the past few weeks. While IAG is known for its transatlantic business, it is also a popular name in the Middle East traveling.

Still, on the positive side, IAG has navigated these major headwinds in the past. For example, the stock dropped from 173p in February 2022 to a low of 87p in July after Russia invaded Ukraine. As such, there is a possibility that the stock will bounce back when signs of the war ending emerge.

The most recent numbers revealed that IAG’s business was doing well, with its revenue rising by 3.5% to 33 billion euros, while the operating margin rose to 15.1%. 

IAG share price technical analysis

IAG stock chart | Source: TradingView

The weekly timeframe chart shows that the IAG stock price has pulled back in the past few weeks. It has slumped from a high of 465p in February to the current 348p. 

The stock has moved below the 23.6% Fibonacci Retracement level. It has moved below the 50-week Exponential Moving Average (EMA) and is slowly forming a bearish pennant pattern.

Therefore, the most likely forecast is bearish, with the next key level to watch being the 50% retracement level at 275p. On the flip side, a move above the 23.6% retracement poin will invalidate the bearish outlook.