IAG share price ready for take-off as jet fuel costs fall

IAG share price has rebounded in the past four consecutive weeks and is showing bottoming signs as crude oil retreats from the year-to-date high. It was trading at $383 on Monday, up by 15% from its lowest level this year. It remains much lower than the year-to-date high of 463p.

Falling crude oil prices to boost IAG

Like all airlines, IAG has gone through a rough patch in the past few weeks as jet fuel prices have soared. IATA data shows that the average jet fuel price jumped to $197 a barrel, up by 119% from the same period last year.

There are risks of jet fuel shortage in Europe, especially if the ongoing blockade continues. However, on the positive side, there are signs that the energy market is improving, with the fuel price falling by 5.3% from a week earlier. European prices fell further by 6.3%.

Crude oil prices dropped today, April 14, with Brent and the West Texas Intermediate (WTI) moving to $97. This retreat is happening as investors predict that the US and Iran will reach an agreement despite the tough talk after the first meeting.

Falling crude oil prices always translate to lower jet fuel costs, which lead to better profitability for airlines. However, IAG, unlike its American peers like Southwest and Delta, is usually more protected from oil shocks because of its hedging strategy. It hedges about 80% of its fuel needs, a figure that will drop to 60% at the end of the year.

Analysts are optimistic that airline stocks have largely bottomed after the recent crash. If this is correct, IAG is well-positioned for growth, helped by its strong fundamentals.

The company is benefiting from the highly profitable transatlantic route and its initiatives, such as an emphasis on premium seats and enhanced economy. It also benefited from the constrained supply in its key markets.

Its most recent results showed that IAG made €33 billion last year, a record figure that was up by 3.5% from a year earlier. Its operating profit before exceptional items rose by 13.1% to €5 billion. This growth happened as the operating margin rose to 15.1%.

IAG is returning substantial sums of money to investors. It repurchased shares worth €1 billion last year, and has boosted it to €1.5 billion this year. The company also boosted its dividend payout to investors by nearly 9%.

IAG stock chart | Source: TradingView

The weekly chart shows that the IAG stock price has rebounded in the past few weeks. It soared from a low of €333 after the Iran war started and moved to the current €383.

IAG has jumped above the 23.6% Fibonacci Retracement level. It has also soared above the 50-week and 100-week Exponential Moving Averages (EMA), a sign that bulls are in control.

The stock has also formed an island reversal pattern, which normally leads to more gains as investors attempt to fill the gap. Therefore, the stock will likely continue rising as bulls target the key resistance level at 450p.