Why IAG and Rolls-Royce shares are surging this month

International Consolidated Airlines Group (IAG) and Rolls-Royce (RR) shares have gone parabolic this month. IAG jumped to 488p, its highest point since 1997, bringing its year-to-date gains to 14.5%. 

Rolls-Royce share price jumped to a record high of 1,532p before pulling back to 1,426p. It has jumped by 23% this year, beating the FTSE 100 Index, which has jumped by almost 5%. 

RR and IAG stocks chart | Source: TradingView

IAG shares have jumped as jet oil prices drop

IAG and other airline stocks have jumped sharply this month, with the US Global Jets ETF (JETS) soaring to $32.50, up by 40% from its lowest level this year. JETS tracks the biggest airline groups in the United States.

The ongoing surge is happening because of the ongoing jet fuel prices crash because of the falling crude oil prices. Data shows that Brent and the West Texas Intermediate (WTI) have dropped to their lowest levels since February. 

Oil prices have dropped amid the ongoing talks between the US and Iran in Switzerland, and the fact that oil is now flowing through the Strait of Hormuz. 

As a result, data shows that the average jet fuel price has dropped to $119.17 per barrel, down by 24% from the previous month. This trend will likely continue falling as energy prices plunge. 

These numbers mean that IAG’s profits will not be as weak as initially predicted. The most recent results showed that IAG’s revenue rose by 1.9% in the first quarter to €7.18 billion, with its operating profit rising by 77.3%. Its operating margin rose to 4.9%, a trend that will now continue growing as long as oil prices fall.

IAG is benefiting from its multiple brands that cater to various clientele, and the fact that its business was less exposed to the Middle East region during the war.  Most of its business is being driven by British Airways and Aer Lingus. 

Rolls-Royce Holdings shares have multiple catalysts

On the other hand, Rolls-Royce's share price has continued its strong rally this month because the war has ended, at least for now. Data shows that the civil aviation has rebounded to pre-war levels, which is helping to boost its long-term service contract revenue. 

This trend means that the company will reach or even surpass its annual targets, with the management predicting that its operating profit will jump to between £4 billion and £4.2 billion. Its free cash flow is expected to be between £3.6 billion and £3.8 billion.

Rolls-Royce share price has also jumped because of the falling aluminium prices as investors anticipate more supplies from the Middle East. It has dropped by 16% from its highest point this year, a move that will boost its margins. 

Like other top industrial companies, Rolls-Royce's share price is rising because of the ongoing artificial intelligence (AI) boom. Its power business has seen its backlog jump to £7.3 billion as demand from data centers rose. 

Most notably, the company’s SMR business has continued doing well this year, with the company winning a bid for a Swedish project. Rolls-Royce is also trading at a bargain price than GE, its top rival.