British Airways parent company's shares surge owing to favorable conditions.
IAG's shares rose further on Tuesday as investors continued to back the airline group, buoyed by positive tailwinds in the aviation sector. The stock gained nearly four percent in early trading, adding to its impressive 90 percent rise over the past year.
The upswing seemed to follow US President Donald Trump's decision to extend the EU's deadline for possible tariffs, originally scheduled for June 1, to July 9. Additionally, news of a dip in crude oil prices ahead of an expected increase in OPEC+ members' output may have contributed to the positive sentiment.
In April, investors had shown some caution due to Trump's unfurling of his 'Liberation Day' tariff war, as the IAG is heavily reliant on transatlantic travel. However, recent data from the National Travel and Tourism Office showed a nine percent drop in UK-US trips in April, indicating a general decline in business travel to the US.
Despite this trend, IAG reported softness in US economy bookings being largely offset by strong demand in its premium cabins. Heathrow Airport also reported a solid increase in year-to-date transatlantic passenger traffic, which rose 5.5 percent to approximately 1.8 million.
Lower oil prices also benefit airlines, as fuel constitutes a significant expense for them. The price of a barrel of Brent crude oil dropped to $64.2 on Tuesday morning. Growing indications of a significant production increase by OPEC+ members, as announced by Goldman Sachs, could further boost the oil market outlook.
Trump's adjustment on EU tariffs also positively impacted shares in other London-listed aerospace firms, with GKN Aerospace owner Melrose rising 3.5 percent, and Rolls-Royce increasing by 2.68 percent. Just earlier this month, British Airways' parent company placed an order for 32 new Boeing planes, following the US-UK trade agreement. The order includes the Boeing 787-10 aircraft for the British Airways fleet, alongside 21 Airbus planes for its other airlines.
- The respite in tariff worries, following Donald Trump's extension of the deadline for EU tariffs, might have encouraged investment in the finance sector, considering IAG's significant reliance on transatlantic travel.
- The positive sentiment around IAG's shares could stem from the drop in crude oil prices, as a decrease in fuel costs is beneficial for the transport sector, particularly airlines.
- Amidst the decline in business travel to the US, IAG has reported a strong demand in its premium cabins, demonstrating the robustness of the airline industry even in challenging economic conditions.
- Apart from IAG, other London-listed aerospace firms such as GKN Aerospace and Rolls-Royce have also experienced a positive impact on their shares, potentially due to the optimistic OPEC+ production increase predictions by Goldman Sachs and the US-UK trade deal leading to significant aircraft orders.
