IAG shares could slip to 400p as jet fuel surges

IAG shares dropped to 419p on Wednesday, trading a few pence above a 417p support level after jet fuel averaged $171 last week. Rising fuel costs have added to operating expenses and coincide with technical signals that market watchers say increase the risk of further downside toward 400p.

The group, which owns British Airways, Aer Lingus and LEVEL, reported first-half revenue of €16 billion, up 1% year on year. Operating profit fell to €1.75 billion from €1.8 billion a year earlier, and operating margin eased to 10.9%. At the time of the results the company had sold roughly 57% of its second-half capacity. Management expects to recover about 60% of the additional fuel cost through higher fares and cost reductions, and the company’s hedging programme covers a portion of near-term exposure.

Crude and refined fuel prices have moved higher. Brent crude has traded above $100 a barrel while US crude (WTI) has been near $95. Jet fuel averaged $171 last week, about 9% higher week on week and roughly 8.9% higher than the same period a month earlier. Traders point to heightened tensions between the US and Iran, the Russia-Ukraine war and fighting between Saudi Arabia and Yemen as factors influencing crude and refined product prices.

Technically, the share price has declined from a high of 493p in June and is about 15% below its peak this year. The stock has tested the 417p support level several times without breaking it. Recent moves pushed the price below the 38.2% Fibonacci retracement level and the 50-day exponential moving average, and the Percentage Price Oscillator has moved below zero. Analysts tracking those indicators warn that a decisive break under 417p would open the way to further losses, with 400p cited as the next likely support.

The chief executive commented in the results statement: “We are well-positioned to deal with these near-term headwinds with a diverse portfolio of world-class brands in large and attractive markets; industry-leading margins; significant free cash flow and a strong balance sheet; and attractive shareholder returns.”

Investors will monitor upcoming trading updates, hedging disclosures and any adjustments to capacity or fares to assess how much of the fuel cost pressure IAG can absorb without further margin deterioration. The company’s results will also be sensitive to any fresh moves in crude and jet fuel prices driven by geopolitical developments.