British Airways parent IAG has warned that air fares will likely continue to rise in the coming months due to increased fuel costs caused by the Iran war.
In an earnings call on Friday (8 May), IAG chief executive Luis Gallego said elevated fuel prices will “inevitably” lead to lower profits this year.
The company's capacity growth forecasts for 2026 have also been revised downward from 3 per cent to approximately 1 per cent, despite the redeployment of “a large part” of its Middle East capacity to routes in Asia and Africa. Gallego added that connections to the Middle East currently account for 3 per cent of the group's total capacity.
IAG, which also owns Iberia, Aer Lingus, LEVEL and Vueling, expects its total fuel bill for 2026 to hit €9 billion – €2 billion higher than earlier predictions. This is in line with similar cost increases noted by European rivals Lufthansa Group and Air France-KLM.
Like its European competitors, IAG said its rising fuel costs will be “partially offset” by its fuel hedging strategy and that its airlines remain 70 per cent hedged for the remainder of the year.
Nevertheless, Gallego said “we need to increase fares in order to mitigate the impact of fuel”, adding that long-haul and premium markets would be the focus, while fare increases on short-haul, intra-Europe routes would prove “difficult” due to regional competition.
When questioned on the “stickiness” of elevated ticket prices, Gallego said “trading remains positive across the group, and very strong, with resilient demand. So, we don’t see any weakness for the time being.” Additionally, outgoing finance chief Nicholas Cadbury shared that 80 per cent of the group’s Q2 capacity has already been sold, and Q3 sales have reached 40 per cent so far.
Despite fears of dwindling fuel stocks across Europe, Gallego said “we are confident of jet fuel supply in our main markets throughout the summer. Today the situation is more about the price of fuel than availability.”
He added: “If the current conflict continues to restrict flows of both crude oil and jet fuel from the Middle East, there is the potential for supplies of jet fuel to be restricted on a global basis. We are engaging with governments in each of our home markets as well as with the EU to ensure that the industry is getting the support it needs to navigate this situation.”
Pointing to the recent closure of US budget carrier Spirit, Gallego said the conflict could result in further consolidation across the aviation sector.
“The current environment may create consolidation opportunities, but at IAG we are always highly disciplined about these opportunities,” he said, referring to the group’s recent decision to bow out of a privatisation bid for TAP Air Portugal.
“We are well-hedged so we will manage this crisis much better than others,” Gallego added. “We are sure that some airlines in Europe will have difficulties, so they will need to reduce capacity. That can be an opportunity for us… So, we expect to be even stronger after this crisis than we were before.”
Q1 metrics
IAG reported a 1.9 per cent year-on-year increase in revenues for the first quarter, reaching €7.16 billion. This was driven by “strong” premium demand across the group’s transatlantic network, where business travel was “notably strong” from North Atlantic points of sale, particularly for British Airways.
Operating profit for the group increased by 77.3 per cent to €351 million as the quarter was “relatively unaffected” by the Middle East conflict. However, higher fuel costs are expected to have a “more substantial impact” in the coming months.
IAG's total capacity for the quarter – measured in available seat kilometres – increased 0.2 per cent compared to the previous year, while passenger revenue per ASK improved 3.5 per cent year on year.
British Airways posed an operating profit of £186 million for the quarter, up £90 million year on year. Iberia's profit rose €27 million to €614 million. Aer Lingus and Vueling, however, reported losses of €103 million and €28 million, respectively, with the Irish carrier facing higher fuel costs and more competition on transatlantic routes.
IAG Loyalty's profit grew £28 million to £116 million.