IAG profits fall as fuel costs surge and 2026 capacity outlook is cut

International Airlines Group (IAG), the owner of British Airways, Aer Lingus, Iberia and Vueling, has reported a fall in third-quarter operating profit as rising fuel costs and operational disruption continue to affect the airline group.

In its results published on Friday 6 November, IAG reported revenue of €9.74 billion for the three months to the end of September, an increase of 4.5% compared with the same period last year. However, operating profit before exceptional items fell by 15.9% to €1.73 billion, down from €2.05 billion in the third quarter of 2025.

One of the biggest pressures was fuel. IAG’s fuel unit costs increased by 30.7% during the quarter, while non-fuel unit costs also rose by 3.4%.

The group attributed the increase in fuel costs to higher commodity prices linked to the conflict in the Middle East, with operational disruption also adding to expenses.

IAG’s total fuel bill for 2026 is now expected to reach approximately €8.9 billion.

The results show that the pressure has been felt across the group’s airlines, although performance varied between businesses.

British Airways recorded third-quarter revenue of £4.21 billion, up 4.5% year on year. Its operating profit, however, fell by £205 million to £608 million, while its operating margin dropped from 20.2% to 14.4%.

Aer Lingus reported revenue of €815 million, up 3.4%, but operating profit fell by €28 million to €142 million.

Iberia recorded revenue growth of 6.9% to €2.30 billion, with operating profit down €58 million to €452 million.

Vueling’s revenue increased by 0.2% to €1.08 billion, while operating profit fell by €15 million to €257 million.

Despite the fall in profit, IAG said demand for travel remains strong. The group highlighted particularly strong performance across its North and South Atlantic markets, with premium travel continuing to support revenue.

It also reported that 85% of expected fourth-quarter revenue had already been booked, with a strong start to bookings for the first quarter of 2027.

The group has also revised its capacity outlook. IAG now expects its overall 2026 capacity to finish slightly below 2025 levels, reflecting disruption during the year and a more disciplined approach to allocating aircraft over the winter period.

The reduction comes after a challenging year for airline operations, including air traffic control disruption, airport handling problems and the impact of the conflict in the Middle East on flights and networks.

There are also potential implications for passengers. IAG has been recovering a significant proportion of higher fuel costs through its fares, with reports indicating that almost all of the increase has been passed on at British Airways and around 80% across the wider group.

The group is not forecasting a specific percentage increase in ticket prices for 2027, but the cost outlook suggests fares could remain under pressure. IAG is currently hedged against 45% of its expected fuel requirements for 2027, compared with 71% for the remainder of 2026, leaving it more exposed to future fuel price movements.

IAG has maintained its full-year 2026 operating margin guidance of at least 12%, despite the additional pressures. It is also continuing its €1.5 billion share buyback programme and has increased its interim dividend by 10%.

The latest results underline the challenge facing one of Europe’s largest airline groups: demand remains healthy and revenue is growing, but higher operating costs are making it harder to turn that growth into profit.

With capacity now expected to fall slightly and fuel costs continuing to influence airline pricing, the impact could be felt by both the industry and passengers into 2027.