IAG Confident It Can Prove Its Resilience

Despite continued strong demand and no concerns about fuel supplies, International Airlines Group (IAG) is slowing capacity growth for the rest of the year to around one percent. That’s down on the three percent the group guided in February. Q1 capacity growth was flat compared to last year, down two percent on the guidance. Q2 will see a one percent capacity increase compared to three, and Q3 of only two percent versus four percent. For Q4 it is too early to make predictions as the schedule is still being worked on, but Group CEO Luis Gallego said that capacity will be affected. “In principle, the growth that we expect for the year will be around one percent”, Gallego said on today’s Q1 earnings call. Demand remains resilient: 80 percent of booked revenues for Q2 have been covered and 40 percent for Q3. “We don’t see any weakness for the time being, so we are going to continue with the current plan”, said Gallego. Customers are willing to pay the higher fares that airlines are offering to offset higher costs, not just in premium cabins but also “at the back of the bus”, as one analyst phrased it. “Long-haul Economy and Economy Plus are performing robustly. The fact that we have a greater mix of Premium Economy versus Economy is also helping with the stickiness of pricing. We see that across all our main markets”, said Sean Doyle, CEO at British Airways. [caption id="attachment_192189" align="aligncenter" width="708"] IAG Q1 2026[/caption] Q1 results IAG reported a consolidated net profit after tax for Q1 of €301 million, up from €176 million last year. Revenues grew by 1.9 percent to €7.2 billion, and expenses were down by 0.2 percent to €6.8 billion. This resulted in a net profit of €351 million, up 77.3 percent year-over-year. Fuel costs were €187 million, but as other airlines have reported, the full effect of the higher prices will be felt in Q2 and upcoming quarters. Outgoing CFO Nicholas Cadbury said that IAG has hedged fuel at 70 percent for the rest of the year. The hedging policy, higher yields, and cost reductions should allow IAG to cover around 60 percent of the higher fuel costs. Gallego is not expecting any fuel shortages, as IAG is reaping the fruits of its strategy launched ten years ago to become self-reliant on fuel. It has long-term contracts with big suppliers in the UK and in Ireland, while it can rely on many refineries in Spain. This gives it supply certainty, while it can also opportunistically buy fuel in advance. “The fact that we have more control over our fuel situation with the volatility in the market will pay off in the summer”, Doyle said. British Airways During Q1, British Airways grew revenues by 7.1 percent to £3.4 billion and the operating result by £90 million to £186 million. This resulted in an operating margin of 5.5 percent. Capacity was down by 0.3 percent, mainly caused by the suspension of flights into the Middle East following the Iran war in late February. As a whole, IAG’s airlines were exposed by three percent to this region. BA redeployed capacity in March and April to Singapore, Bangkok, Nairobi, Delhi, Mumbai, Bangalore, Hyderabad and the Maldives. The UK carrier also saw strong demand on the North Atlantic and in the business travel market. Iberia reported 1.1 percent lower revenues at €1.8 billion and an operating result of €164 million, up €27 million year-over-year. The operating margin was 9.1 percent, once again the highest of all IAG airlines. Capacity was down 1.1 percent despite strong domestic demand. Middle East capacity was redeployed to Latin America and to the Canary Islands. Also, long-haul low-cost subsidiary LEVEL redeployed capacity to domestic routes. LEVEL grew the number of passengers carried by 26.4 percent to 201K. Low-cost subsidiary Vueling grew revenues by 8.6 percent to €816 million, but still reported an operating loss of €28 million, which was an improvement of €27 million year-over-year. Vueling, too, benefited from strong domestic demand as many travellers preferred the plane over the train after various railway accidents in January. Routes to the UK and Italy “were a bit more challenging”, Cadbury said. Capacity was down by 1.9 percent. [caption id="attachment_192190" align="aligncenter" width="701"] Aer Lingus Airbus A321XLR[/caption] Aer Lingus The weakest performing airline this quarter has been Aer Lingus. Revenues dropped 4.1 percent to €420 million, the operating loss widened to €103 million from €-55 million, and the operating margin was at minus 12.6 percent. Cadbury attributed the loss to increased competition in Dublin and the closure of the Manchester base. CEO Lynne Embleton is happy with the progress made on the transformation program, but admitted that Aer Lingus has to improve its operating margin. “Cost reductions are a major part of the transformation, and we are accelerating this. Capacity (plus 4.6 percent) was related to the closure of the Manchester base. Manchester was profitable, but not profitable enough to get to our projected margins.” “What we are looking at now is the network for 2027, particularly as the higher fuel prices are expected to continue into next year. Importantly is how we tackle seasonality. We can make money in the summer, but we are a very seasonal country. The more we can reduce our cost profile, the more we can improve.” Outlook On the fleet, IAG expects to take delivery of 17 aircraft this year. It received another Airbus A321XLR for Aer Lingus this quarter. In January, IAG exercised options on eight A320neos and two A321neos for delivery in 2030 and for ten Boeing MAX for delivery in 2028 and 2029. The MAX will be operated by Vueling. “Whilst the impact of the higher fuel price will inevitably lead to lower profit this year than we originally anticipated, we are confident in our business model and strategy, which has made us one of the best-performing airline groups in the world, and which gives us the opportunity to prove our resilience. This confidence means we are on track to continue with the remaining €1 billion return of excess cash”, Gallego said. “You can be assured that we know what to do and that we will take the right actions to pursue the long-term success of the company.”

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