Spread Bet on International Airlines Group
Having originally been listed on February 11, 1987 at 125p, British Airways was a good example of a company that trades on the news, particularly on bad news, such as strike actions – the company is now known as International Consolidated Airlines Group (IAG) after the British Airways and Iberia Airlines merger. As an airline, you would expect that the share price would vary in inverse correlation to the oil prices, as when fuel becomes more expensive, the slim margins of the airline industry do not provide any buffer against a falling value. But British Airways has less correlation than many because of the various other problems it has had over the years.
 |
On this weekly chart you can follow some of the price movements. The dip in January 2007 was on strike news, which was on top of the increasing security costs. The slide down at the beginning of 2008 was partly blamed on the uncertainty about oil, but also came from the global economy concerns, as airlines are perceived as one of those expenses that can be reduced on both business and family budgets.
More news in the form of a merger plan with Iberia Airlines was announced at the end of July 2008, and you can see a distinct rise in share prices there. At this time, American Airlines started talking with both British Airways and Iberia Airlines. British Airways Plc (British Airways) and Iberia Lineas Aereas de Espana, S.A. (Iberia) finally got together in 2010 in a £5.3bn all-share merger between the two carriers, which led to the creation of International Consolidated Airlines Group, S.A. (IAG) – a Spain-based holding company. The shares of British Airways now trade as International Airlines Group which will remain headquartered in London. The group has around 420 aircraft and typically carries 54.8m passengers a year.
Past
As the unions led a vote for strike action towards the end of 2009, British Airways shares were relatively unaffected, with just a general move down in line with overall market. But the decision to make it a 12 day strike was unexpected, and made the shares dip around 10% at Xmas. Typically airlines do well around the holiday seasons, and generally this has applied to British Airways, although sometimes these peaks come earlier in the year, as bookings increase. The big rise in share price in February 2010 was again driven by the news cycle, with British Airways’s alliance with American Airlines (AA) being cleared with the regulating authorities. A threatened strike around the same time seems to have had little effect on the share price, which highlights the danger in assuming that a particular reaction to news is a sure thing.
On a more general note, the shares of British Airways have failed to perform well since William Walsh was appointed CEO in 2005, and some say that he has not benefited the company. Certainly the commercial airline business in the UK has always been competitive, with companies like EasyJet and Ryanair providing the service and prices that appeal to the masses, so British Airways always faces a struggle for profitability. But the owner of British Airways and Iberia is also handicapped by substantial pension liabilities and the omnipresent risk of industrial action, both problems when it comes to competing on price and service.
Spread Betting on International Airlines Group (IAG) Stock
From a financial spread betting viewpoint, the interesting times to pay close attention with regards International Airlines Group (IAG) around announcement times, and these are quite likely to cause relatively large price movements. As with all such tactics, it’s probably best to be able to go either way very quickly, that is to take out a long or a short position, as soon as the markets reaction to the news becomes apparent. This exposes you to the possibility of trading on a false swing which rapidly reverses, so be sure to keep your stops updated. The company in itself is heavily geared which means that the company represent a potential play particularly if the global economy truly takes off.
How to Spread Bet on International Airlines Group (IAG) Rolling Daily?
International Airlines Group stock (IAG) Rolling Daily is currently trading 132.3 – 133.
Trader A believes that International Airlines Group is going to rise and places a buy bet at 133 for £100 a point.
Trader B has the opposite view and believes that International Airlines Group is going to fall and places a sell bet at 132.3 for £100 point.
International Airlines Group Rolling Daily: Scenario 1*
International Airlines Group rises to 151 – 151.7.
Spread better A’s prediction is correct, International Airlines Group has risen and he closes his position with a sell bet at 151 and subsequently makes a £1,800 profit (18 points x £100).
Trader B decided to cut his losses and closes his position at 151 and incurs a £1,870 loss (18.7 points x £100).
International Airlines Group Rolling Daily: Scenario 2*
International Airlines Group falls to 117 – 117.7.
Trader A’s prediction is wrong and he decides to close his position by placing a sell bet at 117 making a loss of £1,600 (16 points x £100).
Investor B’s position has moved in his predicted direction and he decides to close his position by placing a buy bet at 117.7 making a profit of £1,460 (14.6 points x £100).
*Daily small financing charges for long positions have been excluded for simplicity.
Taking a Position on the Travel & Leisure Sector: Going Long
For better diversification you may want to consider taking a position on the Travel and Leisure sector as opposed to International Airlines Group. This permit you to take a broader view on the Travel and Leisure industry sector without having to base potential gains and losses on that of one individual company.
Let’s suppose that on Monday 27th February, you decided to take a long position (i.e. predicting that the market will rise) on the Travel and Leisure spread buying at £5 per point at 4542 (your buy price). In order to open this sector spreadbet you would need to typically put down a margin payment – assuming this to be 10% of the notional value of the trade this would amount to 4542 x £5 per point x 10% = £2271.00.
A few days later, a travel company announces upbeat results leading to a rise in the general Travel and Leisure Sector stock price. The Travel and Leisure spread betting price is now trading at 4562/4582 and you decide to close your spreadbet by selling £5 per point at 4562 (the provider’s selling price).
Result: This is a winning spread trade, resulting in a gain of 20 points and ultimately tranlating into a £100 profit, i.e. (4562-4542) x £5 = £100.
Join the discussion