International Airlines Group, the owner of British Airways, Iberia, Vueling and Aer Lingus, entered 2026 expecting another year of growth. It is now concentrating on protecting its margins.
Revenue rose by 1% in the first half, to €16.1bn, as demand for air travel remained firm. Yet net profit fell by 20.6%, to €1.03bn. Operating profit before exceptional items, which removes restructuring charges, declined by 6.4% to €1.76bn. The corresponding margin slipped from 11.8% to 10.9%.
The deterioration became more pronounced in the second quarter. Adjusted operating profit dropped by 16.3%, even though revenue was broadly stable. The main culprit was fuel. IAG's fuel and emissions bill increased by 12.3% in the first half and by almost 23% in the second quarter.
The conflict in the Middle East has pushed up oil prices and disrupted routes through the region. Flights to several destinations, including Israel, Jordan and Gulf countries, were suspended. Capacity in Africa, the Middle East and South Asia fell by 9.4% during the half.
IAG's hedging programme softened the blow, producing gains of €769m. Higher fares and cost savings also helped the group recover about 60% of the increase in fuel costs. But short-haul competition, especially on leisure routes to Spain, limited its ability to pass the entire bill on to passengers.
Demand is not the problem. IAG's planes were 85% full, almost one percentage point more than a year earlier, while passenger revenue per unit of capacity rose by 2.4%. The difficulty is converting that demand into higher profit when an essential input becomes sharply more expensive.
A group with uneven engines
IAG was created from the merger of British Airways and Iberia in 2011. It subsequently acquired Vueling and Aer Lingus, building a portfolio that combines premium long-haul travel, European short-haul services and a large loyalty programme. This diversity is now proving useful, though not every part of the group is performing equally well.
British Airways increased its operating profit before exceptional items to £885m, from £824m. Its strong position at Heathrow, premium passengers and corporate demand helped it withstand higher costs. Travellers avoiding Middle Eastern connections also supported some of its routes to Asia.
Iberia remained profitable, although its operating result declined to €526m. Its expansion across the Atlantic continues, helped by the Airbus A321XLR, a narrow-body aircraft capable of serving thinner long-distance routes. Iberia has opened or expanded services to cities including Toronto, Newark, Recife and Fortaleza.
The weaker spots were Vueling and Aer Lingus. Vueling's operating profit more than halved to €46m as competition squeezed fares. Aer Lingus swung from a profit of €80m to a loss of €34m, hurt by higher fuel costs and intense competition from American carriers on North Atlantic routes. The Irish airline has responded by reducing its schedule and launching a cost-cutting programme.
The group's loyalty business offered a useful counterweight. Its operating profit rose by 25% to £239m. Loyalty schemes sell points to banks and other partners, making them less dependent on aircraft, fuel and airport capacity. IAG wants this division eventually to generate €1bn of annual operating profit.
Cash strength
IAG has abandoned its previous plan to expand capacity by roughly 3% this year. It now expects capacity to be flat, largely because Middle Eastern suspensions are likely to continue. The group forecasts a full-year fuel bill of €8.3bn-€8.6bn and still expects its operating margin to land within its long-term target of 12-15%.
The balance sheet provides some protection. Net debt fell by €1.26bn from the end of 2025, to €4.69bn, equivalent to just 0.6 times annual earnings before interest, tax, depreciation and amortisation. Free cash flow rose from €2.10bn to €2.91bn, although the improvement was flattered by delayed aircraft deliveries and a tax payment made in the comparable period last year.
IAG has used some of that cash to reward shareholders. It paid a final 2025 dividend of €0.05 a share in June and has completed about €800m of a €1.5bn share-buyback programme.
