IAG raises its dividend despite a 30% rise in fuel costs
IAG raised its interim dividend 10 per cent and pressed ahead with its buyback, despite third quarter operating profit falling to €1.73bn as fuel costs rose 30.4 per cent. Transatlantic strength and a low-debt balance sheet set it apart from rivals.
All figures are in euros unless stated. €1 = $1.1141
IAG, the owner of British Airways, Iberia, Aer Lingus and Vueling, raised its interim dividend by 10 per cent to €0.053 a share on November 6 and began the final €500mn of its €1.5bn share buyback, even though third quarter operating profit before exceptional items fell to €1.73bn from €2.05bn. Fuel costs rose 30.4 per cent net of hedging in the quarter, narrowing the operating margin to 17.7 per cent from 22.0 per cent.
Revenue rose 4.5 per cent to €9.74bn, and chief executive Luis Gallego said IAG had reached its margin target "despite the very high price of jet fuel and a number of one-off disruption events". Over nine months, pre-tax profit fell 15.8 per cent to €3.05bn as fuel and emissions costs rose 18.6 per cent to €6.4bn, cushioned by €1.25bn of gains from fuel hedges.
The group raised its forecast for 2026 fuel costs to €8.9bn, above the €8.3bn–€8.6bn it set out in July, but kept its guidance for an operating margin of at least 12 per cent, within its target range of 12–15 per cent. Third quarter capacity fell 0.2 per cent against planned growth of about 3 per cent, as flying to Africa, the Middle East and South Asia fell 19 per cent and IAG cut European capacity to protect profitability, and the group now expects capacity for 2026 to be slightly lower than in 2025.
The transatlantic market continued to carry the group, with unit revenue on the North Atlantic up 11 per cent in the third quarter. British Airways' operating profit for the nine months fell by about 9 per cent, while the loyalty business IAG Loyalty grew by about 18 per cent, and the short-haul airlines suffered more, with Aer Lingus earning €108mn against €250mn and Vueling €303mn against €367mn.
IAG's balance sheet is what allows it to keep returning cash, since net debt fell to €4.22bn from €5.95bn at the end of 2025 and leverage to 0.6 times earnings before interest, tax, depreciation and amortisation. It has also hedged 45 per cent of its 2027 fuel, while trimming capital spending to €3.1bn and expected aircraft deliveries this year to 12 from 16.
IAG's results stood apart from those of its rivals this week, since Ryanair said on November 2 that it is considering temporary pay freezes and fewer crew per flight to cope with a €2bn rise in next year's fuel bill, and Lufthansa cut the top of its profit forecast a day later. IAG, by contrast, increased its payout to shareholders.
What to watch: whether the fourth quarter supports the 12 per cent margin floor, the capacity plan for 2027, and the size of shareholder returns IAG announces with full-year results early next year.
