LONDON, July 31 (Reuters) - British Airways owner IAG (ICAG.L), opens new tab trimmed its 2026 capacity outlook to flat on Friday, after reporting a 16% drop in second-quarter profit hit by soaring fuel costs and weaker travel demand linked to the Middle East conflict.Shares initially fell around 5% before paring losses to stand down 1.6% at 0850 GMT. The capacity downgrade was offset by quarterly profit coming in just ahead of analyst expectations and a slightly lower fuel bill forecast.
IAG had forecast capacity growth of less than 3% in May.European airlines have struggled with spiralling fuel costs since the war began at the end of February. IAG's results underscore the pressure and uncertainty highlighted by Ryanair (RYA.I), opens new tab and easyJet (EZJ.L), opens new tab this month, as the conflict drives up costs and dampens travel demand.With little sign of an end to the war, many airlines are re-evaluating their hedging strategies and tightening cost controls, with many cutting capacity.
FUEL COSTS, HIGHER FARES
Still, IAG sought to project stability, and analysts and investors appeared unfazed by the results, with few adjusting their financial forecasts.
"Our strategy is working. Our exposure to different markets and our diverse brands and customer propositions are providing resilience," Chief Executive Luis Gallego said on a media call.IAG, which also owns Iberia and Aer Lingus, said its fuel costs for the year would be between €8.3 billion and €8.6 billion ($9.6-$9.9 billion), slightly lower than the roughly €9 billion forecast in May.Air France-KLM (AIRF.PA), opens new tab on Thursday projected its 2026 fuel bill would be in a similar range, at about €8.9 billion.
IAG: Fuel bill takes off
British Airways owner IAG said its fuel bill this year could end up between €8.3 and €8.6 billion, up sharply versus a year ago on higher jet fuel prices linked to the Iran war.
All of IAG's airlines were hit by higher fuel prices from March onwards, as fuel costs and emissions charges climbed nearly 23% in the second quarter to €2.22 billion, the company said.IAG has long relied on demand on its core transatlantic routes, which remain strong with growing capacity and strong bookings in premium for British Airways, the group said.
United Airlines (UAL.O), opens new tab this month said it would incur nearly $6 billion in additional fuel costs this year due to a renewed surge in oil prices linked to the war, while Ryanair and easyJet have both reported profit hits.
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