IAG beats forecasts but warns fuel will bite in Q2

International Airlines Group posted a sharply better-than-expected first quarter on Friday, with operating profit surging 77 per cent, but in the same breath issued a profit warning, telling investors that soaring jet fuel costs and supply disruptions from the Iran war will weigh more heavily on 2026 earnings than previously expected.

Revenue for the three months to 31 March reached €7.18bn, up 1.9 per cent year on year, hitting the analyst consensus precisely. Passenger revenue was the stronger line, rising 3.8 per cent, as revenue per passenger climbed 3.5 per cent, evidence that IAG is successfully passing higher fuel costs through to ticket prices, at least for now.

IAG carried 26.4 million passengers in the quarter, up from 26.2 million in Q1 2025, on capacity that was essentially flat at 79.3 billion available seat kilometres. Load factor improved to 84.2 per cent from 82.7 per cent, a 1.5 percentage point gain that reflects disciplined capacity management and robust transatlantic demand.

British Airways nearly doubled its first-quarter operating profit to £186mn, making it the standout performer in the group. Iberia posted an operating profit of €164mn, up €27mn on the same period in 2025, while Vueling halved its seasonal loss to €28mn. The outlier was Aer Lingus, whose losses nearly doubled to €103mn, the only IAG airline to worsen its result year on year, with the carrier now evaluating its network plans for 2027 amid higher fuel costs.

The profit warning overshadowed the beat. IAG now expects full-year jet fuel costs of approximately €9bn, around €2bn higher than in 2025, with 70 per cent of anticipated fuel needs hedged for the remainder of the year. Free cash flow will be lower than the previously guided €3bn, and full-year capacity growth will fall short of the 3 per cent ASK increase guided at the February full-year results.

Chief executive Luis Gallego said IAG was actively managing the uncertainty created by the fuel price increase through action on yields, costs and capacity, and said the group saw no issues with fuel availability in its main markets. He told reporters the company had invested in its own fuel supply and inventory over many years and was not caught off-guard by the current environment.

Middle East capacity, which represented approximately 3 per cent of the group's total flying before the conflict, has been reallocated to other regions. That reallocation limits the direct revenue loss but adds operational complexity that will register more fully in the Q2 figures.

IAG shares fell almost 3 per cent in early London trading, making the stock one of the largest losers on the FTSE 100 on the day. J.P. Morgan analyst Harry Gowers remained constructive, writing that the current conflict would "prove the resiliency of the group and the strong free cash flow generation to remain intact."

What to watch: the Q2 report on 31 July, when the full weight of the €9bn fuel bill and reduced capacity will register simultaneously. The 70 per cent hedge ratio provides a buffer, but the unhedged 30 per cent, at current prices, is where the full-year profit outcome will be determined.