The IAG share price has crashed hard this month, erasing most of its gains since last year, when it was one of the best-performing companies in the FTSE 100 index. It has dropped in the last three consecutive days, moving to a low of 210p, the lowest level since November last year. It is down by over 40% from its highest point this year.
Why the IAG share price is crashing
The IAG stock price has crashed because of the ongoing trade war between the US and European countries.
IAG is more exposed to the ongoing crisis because of the volume of trade it does between Europe and the United States.
The company’s flagship brands like British Airways and Iberia make millions of euros a week from this route. As such, the ongoing trade war risks hurting the transatlantic route, especially when it is involving business travel.
Analysts expect many businesses to start cutting costs in the next few weeks as the trade war escalates. That’s because Trump set a 10% tariff on the UK and 20% for the rest of the European Union. In a note, analysts at TD Cowen said:
“We expect a world of slower growth, higher inflation, and a more isolationist US to significantly disrupt the competitive environment for airlines and ground the multiples back.”
Are these fears justified?
In theory, these fears are justified as tariffs will likely have a big impact across all industries. Also, the tariffs will make the cost of doing business much worse over time as companies will be forced to adjust their pricing.
However, there is a likelihood that these fears have been blown out of propotion for several reasons. First, IAG’s business may benefit from the tumbling crude oil prices. Brent, the international benchmark, has crashed to $63, while West Texas Intermediate (WTI) has moved to $59.55.
Lower oil prices are good for airlines since it will help them lower the cost of doing business because jet fuel is the most important input cost.
Second, airlines have gone through a worse period before. For example, they saw a sharp dive in demand after the 911 attack in 2001. Most recently, all of these companies suffered as they were forced to park their planes during the pandemic.
Third, IAG’s business is doing well, as evidenced by the recently released annual results. The data showed that the company made over €32 billion in 2024, a 9% increase from a year earlier.
This growth led to a 2.9% annual profit increase, which jumped to over €2.7 billion. The company guided to strong results this year as it reduced its debt. IAG also continued to pay dividends to its shareholders.
IAG share price analysis
IAG stock chart | Source: TradingView
The daily chart shows that the ETH price has crashed in the past few days as concerns about the transatlantic route remains. This decline is in line with our previous IAG stock forecast. It has dropped from 370p to 218p today as it crashed below all moving averages.
The Relative Strength Index (RSI) and the Stochastic Oscillator have all crashed to the oversold levels.
Therefore, a contrarian case can be made on the IAG stock in the near term since the company has strong fundamentals. If this happens, it may bounce back to the 200-day moving average point at 276p.
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