Soaring fuel costs hit profit at British Airways owner IAG

British Airways' parent company IAG's profit has taken a significant hit due to soaring jet fuel prices, a trend industry experts warn could threaten some airlines' survival next year. The London-listed firm, which also owns Vueling and Aer Lingus, reported a 16% dip in pre-tax profit to €3bn for the nine months ending September.

The primary reason for this profit decline is the "significant increase in jet fuel prices from March onwards," triggered by the closure of the Strait of Hormuz due to the Middle East conflict. While airlines have largely managed to keep fuel costs in check so far this year, industry insiders predict a continuation of rising prices into next year, which will burden both airlines and passengers.

IAG's chief executive Luis Gallego highlighted the "very high price of jet fuel" in a statement to shareholders. The group's fuel expenses, including emissions charges, surged 19% since last year, reaching €6.4bn in total. This increase is primarily attributed to the sharp rise in average fuel commodity prices from the end of February 2026, linked to Middle East conflict and disruptions in shipping and oil exports through the Strait of Hormuz.

Although airlines have been able to shield passengers from rising fuel costs through hedging agreements, the amount of fuel that can be purchased at a fixed price will decrease significantly next year. While IAG has hedged about 70% of its fuel needs for the current financial year, it plans to hedge only 45% for 2027. Similarly, budget carrier Ryanair has hedged 80% of its fuel requirements in the current year at €67 per barrel, but this protection will drop to 25% at approximately €95 per barrel from next year.

To cope with the higher fuel costs expected in 2027, Ryanair is considering implementing pay freezes and AI-driven efficiency measures, which could absorb an estimated €2bn in additional expenses. IAG's Gallego acknowledged that the group's airlines are benefiting from "robust" customer demand, with revenue growing 4.5% to €9.7bn in the third quarter. The company has also increased its dividend by 10% to €0.053 per share.