Earnings Impact: IAG’s Fuel Surge Hits 3Q26 Profit

IAG's 3Q26 operating profit fell 16% to €1,726m, and fuel rose €570m on €416m of new revenue. The 17.7% margin still beat Lufthansa at 11.5% and Air France-KLM at 13.6%, though definitions differ. IAG reported on November 6. Operating profit is before exceptional items. Company-compiled consensus was €1.81bn, per AJ Bell, so the quarter missed by about 5%, per our math. CEO Luis Gallego said, "Strong yield performance in all our markets reflects robust ongoing customer demand for travel." What the table doesn't say is how much of the new revenue the fuel bill took, and how that compares with the peers. That is below. Behind the break: how IAG's fuel share compares with the peers, what the hedge book covers, why British Airways, Iberia and Aer Lingus split on the same market, and what 4Q needs to hold the margin floor. Group figures are from IAG's nine-month report. Airline-level 3Q figures come from the press. Everything above is public. The analysis below is what AirInsight subscribers pay for. Yield is fine. Fuel is the problem. This is consistent across all airline earnings so far this quarter. Revenue rose €416m. Fuel and emissions rose €570m after hedging. Fuel took 1.4 times the new revenue, per our math. That is a worse ratio than any US carrier or Air France-KLM this season. Demand did its job. Unit revenue rose 4.1%, and every airline made money. The fuel bill ate the gain and then some. The US carriers we tracked sent 56% to 72% of incremental revenue to fuel. Air France-KLM was 62%. IAG is the outlier at 137%. Fuel per ASK rose 30.7% in 3Q. Over nine months, it rose 18.8%. The bill came late. Nine-month fuel is €6.4bn, up €1,003m. Hedging gains were €1,252m over nine months. The first-half gain was €769m, per MarketScreener. That leaves about €480m for 3Q, per our math from two sources. The cushion is there. It wasn't enough. IAG hedges up to 75% near term, stepping down to 20% in the third year. It is 45% hedged for 2027. Air France-KLM is at 54% and Lufthansa about 60%. Ryanair is 80% hedged for FY27. Each is taking very different bets on the situation in Iran. The 2026 fuel bill is now €8.9bn, against €8.3bn to €8.6bn guided in July. That implies about €2.5bn in 4Q, per our math, in a seasonally smaller quarter. Aviacionline quotes Iberia saying IAG will recover close to 60% of the extra cost this year. The North Atlantic was the quarter. Unit revenue rose 11.0% on capacity up 0.2%. Load factor fell 1.7 points to 85.0%. Every IAG airline reported positive unit revenue. British Airways grew capacity 2.2% and unit revenue 12.0%. Iberia grew ASKs 11.5% on A321XLRs, with unit revenue up 4.2%. Aer Lingus added 1.1% capacity for unit revenue up 0.7%. Same market, three outcomes. Aer Lingus earned €108m over nine months against €250m. IAG blames heightened competition on Dublin's North Atlantic routes. The Irish Examiner has 3Q at €142m against €170m. CEO Lynne Embleton said, "We must adapt as a business to a competitive environment that is here to stay." The plan could cut up to 500 jobs and 6% of capacity. Aer Lingus is IAG's weak brand. British Airways earned £1,493m over nine months, down 9% from £ 1,637 m, per our math. Unit revenue rose 12%, and profit fell. IAG says redeploying aircraft and crews after the Gulf closures hurt absolute profit. AMESA capacity fell 19.0% in 3Q and unit revenue rose 13.2%. IAG credits business customers now flying from North America via London. The Middle East was about 3% of group capacity. Iberia earned €978m over nine months, down 8.9%. Its 3Q was €452m at a 19.6% margin, per Democrata. Vueling earned €303m, down 17.4%, and cut 3Q capacity by 5.2% against competitor growth. LEVEL cut capacity 23.4% and filled 94.8% of its seats. IAG Loyalty earned £391m over nine months, up 17.8%. It was the only unit that grew. Every airline made money in 3Q, with margins from 14.4% to 23.8%. Cargo followed the sector. Revenue rose 3.9% to €294m on tonne-kilometers down 13.9%. Revenue per CTK rose 20.7%. Non-fuel unit cost rose 3.4% in 3Q and 0.3% over nine months. The full-year guide is now about 1%. That implies a 4Q rise near the 3Q rate, once again, our rough math. Capacity was planned to grow about 3% over nine months. It fell 0.2%. IAG cites Middle East cancellations, engine-related aircraft availability (we did not expect this, but perhaps it drove this choice), and air traffic control disruption. ITV puts the September 8 NATS failure at more than 2,000 cancellations. Selling costs rose 19.1% in 3Q to €268m. The report doesn't explain why. Nine months carry €149m of restructuring, €114m at Iberia and €35m at British Airways. Only €12m has been paid. Iberia's payments run to 2033. IAG took five aircraft in nine months and now expects 12 for the year, down from 16. Three Vueling 737s and one BA A321neo slipped. It also exercised options for 10 A320neo family aircraft for 2030 and 10 737s for 2028 and 2029. Not a whisper about the 777-9. BA has 24 on order and about 18 options left, making this one of Boeing's biggest customers for this model. IAG expects a 2026 operating margin of at least 12%, the floor of its 12%-15% range. Nine months run at 13.5% against 15.6%. Aviacionline puts the 4Q requirement at about 7%. Bookings for 4Q are 85% secured, and 1Q27 is "strong." Capacity for the year is slightly below 2025. Net debt is €4,220m against €5,948m in December. Leverage is 0.6x. Liquidity is €12.5bn. Capex is about €3.1bn. The interim dividend is €0.053, up 10%. The final €500m of the €1.5bn buyback has started and runs to February 2027. What is 2026 hedge cover, and at what price? How big was the 3Q hedge gain? Why did selling costs jump 19.1%? How does non-fuel unit cost land near 3% in 4Q? IAG has the strongest margin and balance sheet of the EU three. It also has 55% of 2027 fuel still open.

Fuel costs outpace IAG revenue, profits plunge 16%

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