British Airways owner IAG warns on profit and capacity as fuel prices soar
IAG Faces Financial Pressure Amid Rising Fuel Costs
By Yamini Kalia and Joanna Plucinska
Profit Warning and Market Reaction
May 8 (Reuters) - British Airways owner IAG's annual profit will be lower than forecast, it warned on Friday, saying that soaring jet fuel costs and supply disruptions driven by the Iran war will weigh more heavily on earnings than previously expected.
Shares in IAG were down almost 3% at 0736 GMT, making it one of the biggest losers on the FTSE 100 index.
Sector Performance and Resilience
The shares have been among the top performers in the airline sector in recent years thanks to IAG's resilience in the transatlantic market. That resilience remains in place, Chief Executive Luis Gallego said on a media call.
Impact on Cash Flow and Capacity
The company said that free cash flow and capacity would be lower than previously projected, joining Air France-KLM, easyJet and others in flagging a hit tied to spiralling fuel costs.
Jet Fuel Costs and Hedging Strategy
IAG, which also owns Iberia and Aer Lingus, expects jet fuel costs to be about 9 billion euros ($10.56 billion) this year, with 70% of its anticipated fuel needs hedged for the remainder of 2026.
Management Response to Uncertainty
“We are actively managing the uncertainty created by the fuel price increase and its impact, taking the necessary action on yields, costs and capacity. We currently see no issues with fuel availability in our main markets," Gallego said in a statement.
He added on a media call that the company expects this year's jet fuel costs to be about 2 billion euros higher than in 2025. IAG had previously said its airlines would have to charge higher fares to offset the rising cost of fuel.
Future Projections and Analyst Outlook
The company did not give specific projections for annual profit on Friday but said that "capacity will be lower than the 3% increase guided at full-year results".
Free cash flow would also be lower than the previously projected 3 billion euros, its statement said.
Fuel Supply Preparedness
However, Gallego said the company was not concerned about fuel supply.
"We have been planning for situations like this for many years. We have invested, a long time ago, in our own supply, our own fuel, our own inventory," he told reporters.
Share Performance and Analyst Sentiment
IAG beat profit expectations when it reported full-year results in February, but its shares dropped on uncertainty over its 2026 guidance.
Though the share price fell on Thursday, analysts remained upbeat on the group's outlook.
Analyst Commentary
"We expect the current conflict will prove the resiliency of the group and the strong free cash flow generation to remain intact," J.P. Morgan analyst Harry Gowers said in a note.
($1 = 0.8514 euros)
(Reporting by Yamini Kalia in Bengaluru and Joanna Plucinska in LondonEditing by David Goodman)
