- The IAG share price forecasts indicate that there is more selling coming up for the stock before a recovery is possible.
IAG (International Consolidated Airlines Group) is caught in the middle of the fuel-shock regime, which is a consequence of the current geopolitical standoff in the Middle East. The volatility of the IAG stock has spiked, shaking up any previous IAG share price forecasts.
The stock closed out February at 423.7p and, by 10 March, had declined to 376.1p. The reason for the decline is not far-fetched: higher oil prices mean higher costs of Jet A1 aviation fuel on which aircraft run. Higher fuel costs could lead to margin compression. With reduced tourism potential this summer due to the ongoing conflict (Dubai and Doha, Qatar, are key connection points to various destinations), airlines are facing headwinds they have not faced since the pandemic.
The stock closed on 11 March at 372.6p, posting a range of 370.1p – 376.2p. As of writing on 12 March, the stock’s selling has continued unabated, and it now trades at 363.6p.
What is Driving IAG Share Price Forecasts Right Now?
1) Jet A1 fuel shock, directly linked to the oil price spike, is the dominant headwind confronting IAG and other airlines. Airlines typically operate on fine margins, depending mostly on passenger traffic for revenue and profitability. Therefore, they are highly prone to margin knocks from higher fuel prices or lower-than-expected passenger numbers. In this situation, many airlines could be forced to raise prices to stay afloat and also face the potential dilemma of pricing out certain passenger segments. Such margin compression is what is now leading to cautious guidance from several airlines.
2. Pass-through Rates: Airlines typically respond to rising costs by raising ticket prices and adjusting capacity. While this helps to build resilience in earnings, the typical market response to such shocks is to sell. Only when consideration is given to evidence that the adjustments in capacity and pricing have had a positive impact does sectoral demand return. The IAG’s share price is currently in a sell phase.
IAG Share Price Forecasts: What to Look For this Week
As a trader, what should you be watching as a fundamental driver of price action?
a) Direction of oil prices and by extension, Jet A1 fuel. Elevated oil prices mean Jet A1 will remain expensive, keeping the IAG share price under pressure. Due to the high sensitivity of airline stocks to fuel prices, even minor retracements can lead to price recovery.
b) Price hike information: If there is information that passengers are adapting positively to hikes in ticket prices, this will help stabilize the IAG share price ticker.
c) News about operational disruptions: It is normal for flight cancellations and disruptions to follow the events that have taken place in the Middle East recently. Most of this has already been priced in. However, new escalations in the geopolitical space could result in extensive disruptions, which would typically increase the risk premia associated with the aviation industry.
IAG Share Price Forecast Scenarios
Base case: the bias is for price to continue a choppy stabilization towards the downside, as long as fuel prices remain elevated. The expectation is for the stock to range-trade between 370-380p as the market seeks clarity on the oil market and the ticket price pass-through impact.
Bull case: a rebound from current lows, but this depends on a pullback in oil prices and Jet A1 fuel costs. This scenario will also depend on the sectoral narrative shifting to a focus on pass-through effects and the ability to retain passenger traffic at higher prices. The price impact will be a return to the 390-400p range, which is a recent support zone.
Bear case: more extensive travel disruptions and renewed spikes in oil prices and aviation fuel costs will add more pressure on the IAG share price. This shift will cause a market repricing to the downside, as the narrative now focuses on guidance, demand risks, and margin compression. The low 360s will beckon once more, with a potential to push towards the mid-340s.
IAG Share Price Forecast: Technical Outlook
The breakdown of the 367.6 support and 38.2% Fibonacci retracement of the 2 March-9 March downswing has allowed for a bearish push towards the 358.6 support which houses the 3 March and 6 March prior lows. If this support is degraded, the bears will be on their way to a reclaim of the 9 March low at 344.0.
On the other hand, the bulls must defend the 358.6 support to give the stock a chance at recovery, with 367.5 needing to be uncapped before upside targets at 374.9 and 382.2 become visible.
