International Consolidated Airlines Group (LON:IAG) reported a resilient first-half performance as strong travel demand and cost controls partly offset higher jet fuel prices and disruption related to the Middle East conflict.
The airline group posted operating profit of €1.757 billion for the first six months of 2026, down €121 million from a year earlier, while its operating margin was 10.9%. Revenue rose 1.0%, including growth of 1.9% in the first quarter and 0.2% in the second quarter. Chief Executive Officer Luis Gallego said the group remained confident it could achieve its full-year operating-margin target of 12% to 15%.
Fuel costs weigh on second-quarter results
Chief Financial Officer José Antonio Barrionuevo said the Middle East conflict had an immediate effect on capacity and fuel costs, limiting the company’s ability to respond quickly. Fuel unit costs increased 12.5% during the first half, despite €769 million in hedging gains.
Second-quarter operating profit declined by €274 million year-over-year to €1.406 billion, with the operating margin falling to 15.8% from 19.0% in the previous year. Passenger revenue increased by €318 million excluding foreign-exchange effects, but this was insufficient to offset a €489 million increase in fuel costs at constant currency.
The group said it was around 70% hedged for the balance of 2026 and approximately 40% hedged for 2027. Foreign exchange was a €52 million drag on first-half operating profit, as the translation impact of a weaker pound sterling against the euro outweighed a modest favorable transaction impact.
Passenger revenue rose by €828 million at constant currency in the first half. Cargo revenue fell by €23 million as lower volumes, mainly related to suspended Middle East routes, were only partly offset by a 3.3% increase in yields.
British Airways and loyalty business lead performance
British Airways was among the group’s strongest contributors, increasing operating profit by €44 million year-over-year. On a reported basis, British Airways generated operating profit of £885 million and lifted its margin to 11.9%. Management cited strong premium and corporate demand, particularly across the North Atlantic network.
IAG Loyalty also delivered higher earnings, with operating profit rising £48 million to £239 million and its margin reaching 19.3%, up 3.4 percentage points. Gallego said Avios issuance increased 15% and active members rose 9%, supported by new partnerships including bp pulse and Uber Eats in the U.K. and Cinesa in Spain.
Iberia reported operating profit of €526 million, down €38 million, while maintaining a 13.5% margin. The airline continued to see strong demand in Latin America, although higher fuel costs and engine-maintenance-related cancellations affected results.
Vueling’s operating profit declined €49 million to €46 million amid fuel inflation and competitive pressure in European short-haul markets. Aer Lingus posted an operating loss of €34 million, compared with an €80 million profit a year earlier. Management attributed the reversal to higher fuel costs and competitor capacity growth, particularly from U.S. airlines.
- North Atlantic unit revenue increased 7.3% at constant currency, supported by British Airways premium and corporate demand.
- Latin America and Caribbean unit revenue rose 2.4% as capacity grew 5.3%.
- European unit revenue increased 1.2%, though the group described intra-European short-haul markets as highly competitive.
- Capacity in Africa, the Middle East and South Asia fell 17.4% after the suspension of most Middle East routes.
Capacity discipline and Aer Lingus turnaround
IAG now expects full-year capacity to be flat, compared with earlier guidance for growth of about 1%. Gallego said the change reflects the cancellation of a substantial portion of Middle East operations, alongside decisions to remove inefficient capacity and preserve margins.
The group plans to resume Doha flights on Sept. 1, followed by Riyadh, Dubai and Tel Aviv from Oct. 1, subject to developments in the region. British Airways has redeployed some capacity to markets including India, Nairobi and Johannesburg.
Aer Lingus is implementing a transformation plan after its first half-year loss outside the COVID period in some time, according to management. The airline has reduced its network by 6%, is pursuing cost reductions and has removed more than 25% of senior-management positions so far. It is also consulting unions on further head-office reductions and plans to invest in premium-economy and business-class products.
Management said Aer Lingus aims to reach the group’s 12% operating-margin threshold, though it does not expect an immediate turnaround. The company said a lower cost base and potential future investment in next-generation aircraft would be important to achieving that target.
Cash flow, investment and shareholder returns
IAG generated €2.905 billion in free cash flow during the first half, €808 million more than a year earlier. Net debt declined to €4.7 billion from €5.9 billion at the end of 2025, while net leverage fell to 0.6 times.
Capital expenditure totaled €1.291 billion in the first half. The group expects full-year capital expenditure of about €3.4 billion and anticipates 16 aircraft deliveries in 2026, mostly in the fourth quarter. One delivery previously expected this year has slipped into 2027.
The company said it had completed about €800 million of the €1.4 billion excess-cash return program announced in February. IAG plans to update investors on its 2026 interim dividend with third-quarter results.
Looking ahead, Gallego said IAG was booked at about 57% of expected second-half revenue, in line with the prior year. The group expects continued strong corporate demand and broadly similar unit-revenue performance to the second quarter, while maintaining its full-year margin target through revenue initiatives, cost discipline and capacity reductions.
About International Consolidated Airlines Group (LON:IAG)
International Consolidated Airlines Group SA, together with its subsidiaries, engages in the provision of passenger and cargo transportation services in the United Kingdom, Spain, the United States, and rest of the world. It also provides aircraft leasing, aircraft maintenance, tour operation, air freight operations, call centre, ground handling, trustee, retail, IT, finance, procurement, storage and custody, aircraft technical assistance, human resources support, and airport infrastructure development services; and manages airline loyalty programmes.
