IAG sees 2026 capacity slightly down, keeps margin target despite fuel headwinds

International Airlines Group (IAG) anticipates a slight decline in capacity for the 2026 fiscal year, attributed to the loss of Middle Eastern routes and disruptive events, while maintaining its goal of an operating margin of at least 12% amidst surging fuel costs. The group's British Airways and Iberia reported a revenue of €9.74 billion in the third quarter, marking a 4.5% increase compared to the previous year.

However, operating profit before exceptional items decreased to €1.73 billion from €2.05 billion, resulting in a 17.7% margin. IAG's shares saw a 1% rise in London trading. The company's fuel expenses surged by 30.4%, net of hedging, and non-fuel unit costs increased by 3.4% due to disruptions, including significant air traffic control outages, which were partially offset by cost-cutting measures.

Strong yields across all markets, especially on the North and South Atlantic routes, compensated for these challenges. IAG's Chief Executive, Luis Gallego, highlighted the company's resilience, citing robust demand for travel across all its airline brands. North Atlantic unit revenue increased by 11.0% despite flat capacity, while British Airways boosted its North Atlantic revenue by 12.0% and increased capacity by 2.2%.

Iberia expanded its capacity by 11.5%, benefiting from its A321XLR aircraft, with unit revenue increasing by 4.2%. South Atlantic unit revenue grew by 2.3%, with a 5.4% rise in capacity. Capacity was reduced by 1.2% in Europe to preserve profitability, as competitors added more routes. In Africa, the Middle East, and South Asia, capacity declined by 19.0% due to flight suspensions in many Gulf destinations, yet unit revenue rose by 13.2%.

For the year, IAG projects non-fuel unit costs to rise by approximately 1%, fuel costs to reach €8.9 billion, capital expenditure of €3.1 billion, and 12 aircraft deliveries in 2026. The company has increased its interim dividend by 10% to €0.053 per share and initiated the final €500 million tranche of its €1.5 billion share buyback.