IAG warns on profits, cites rising fuel costs

(Sharecast News) - IAG warned on Friday that annual profit would be lower than previously expected, with the Middle East conflict set to have a more substantial impact throughout the rest of the year as rising fuel costs begin to bite.

The profit warning came as the BA and Iberia owner hailed a "strong" first quarter, with operating profit up 77.3% to €351m and revenue 1.9% higher at €7.2bn amid continued solid demand for its network and brands and with limited impact on cost from the Middle East conflict.

IAG highlighted strong demand across most of its markets, particularly in its Premium cabins and in both the North and South transatlantic markets, which together represent around half of its capacity.

In particular, business travel continues to deliver good revenue growth, it said, while there has been some long-haul yield pressure at Aer Lingus, due to high levels of competition, as well as some softer demand in the Eastern Mediterranean. The short-haul European market remains competitive.

Looking ahead, and IAG expects the conflict and rising price of oil to have more of an impact.

"Whilst the first quarter was relatively unaffected by the Middle East conflict we expect it to have a more substantial impact throughout the rest of the year as the increase in the fuel cost starts to manifest itself," the company said. "As a result we expect our profit to be lower than originally anticipated at the beginning of the year."

IAG also said that free cash flow would be "significant" but less than the €3bn guided in February due to the impact of the Iran war, while capacity will be lower than the 3% increase guided.

Based on the fuel curve as at 5 May 2026, IAG, which also owns Aer Lingus and Vueling, expects fuel costs of around €9bn for the year - €2bn higher than previously forecast. The group expects to recover around 60% of the higher fuel cost this year through its revenue and cost management actions.

IAG has hedges in place for around 70% of its fuel needs for this year.

Chief executive Luis Gallego said: "We are actively managing the uncertainty created by the fuel price increase and its impact, taking the necessary action on yields, costs and capacity. We currently see no issues with fuel availability in our main markets, particularly as we benefit from our investment in fuel self-supply at our hubs.

"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."