UBS downgrades IAG over fuel, yield concerns
International Consolidated Airlines Group SA (CDI)
176.15p
17:05 25/04/24
Higher fuel prices are one of several potential headwinds facing British Airways and Iberia owner IAG, making UBS more cautious on the group's outlook.
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UBS, which downgraded the stock to 'neutral' from 'buy' with a price target of 705p cut from 780p, pointed to rising fuel price with further potential headwinds given the potential impact on the supply of jet fuel from the incoming regulations from the United Nations' International Maritime Organization.
From January 2020, all ships will need to consume fuels containing less sulphur under the 'IMO 2020' rules, which is expected to lead to an initial demand surge from shippers for diesel-type products when the rules kick in. Commodities traders say that, as diesel is critical in determining the cost of normally more-expensive jet fuel, if that historic price relationship holds, then the aviation industry’s fuel bill could surge as well.
UBS also highlights rising airline industry capacity, "which could impact yields", with potential deterioration in North Atlantic yields and in-house forecast suggest a weak 2019 yield environment.
"Furthermore, 2019 is likely to bring the well flagged economic uncertainty from Brexit."
Analysts have downgraded their 2019 and 2020 forecast EPS by 14% due to changes in currency, fuel and the outlook for yields post 2018.
"Our 2019e Ebit forecast is now below 2018e levels and should our forecasts prove correct it will be the first year since the formation of IAG that ebit has not seen growth."