IAG (LON: IAG) share price has gyrated recently as concerns about margins rose. The shares were trading at 154.20p on Thursday, down from last month’s high of 173.10. Like other airline stocks, IAG has jumped by more than 20% from its lowest level this year.
Margin pressure concernsIAG and other airlines are having a great year as air travel rebounds. Numbers by IATA shows that the industry has recovered well, with traffic in July jumping by 26.3% YoY. Domestic and international traffic soared by more than 21% and 29.6%, respectively.
IAG is a major beneficiary of these trends because of its scale. In addition to owning British Airways, the company also owns companies like Aer Lingus and Vueling, which are well-known brands in Europe.
These trends explain why IAG is doing well as evidenced by the company’s financial results. Its total revenue in the first half of the year rose to over €13.5 billion, a big increase from the previous €9.3 billion. Its profit for the period also jumped to €921 million, a big increase from the €654 million loss it made in the previous year.
Recently, however, IAG and other airlines are dealing with the challenge of soaring crude oil prices. As I wrote here, the price of Brent has jumped to over $92 while West Texas Intermediate (WTI) is nearing $90. And some analysts expect the oil will soar to $100.
Rising crude oil prices have an impact on jet fuel, the biggest variable cost in the aviation industry. These fears were confirmed this week when American Airlines slashed its profit guidance. It now expects to spend $3 per gallon, higher than the previous estimate of $2.60. IAG will face these costs as well.
The other major headwind for IAG is that of an economic slowdown. If the economy in its key markets slows, the company will have to deal with higher costs and low demand. Most importantly, the company could lose pilots to its global rivals, who are paying higher salaries as the shortage continues.
IAG share price forecast
The daily chart shows that the IAG stock price has come under pressure in the past few months. It has found a strong resistance at 172.25p, the highest level on August 1st and in February.
The shares have moved at the 50-day and 25-day moving averages while the Relative Strength Index (RSI) has moved below the neutral point of 50. Therefore, I suspect that the shares will continue falling as sellers target the key psychological support at 140p.
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