IAG shares descended on Friday despite reporting a strong start to 2026 as investors focused on a cut to it profit forecasts.
IAG enjoyed reasonable trading in the early months of 2026, with operating profit jumping 77.3% to €351 million in the first quarter on revenue growth of 1.9% to €7,181 million, as the British Airways and Iberia owner enjoyed robust demand across its networks and brands.
Operating margin expanded 2.1 percentage points to 4.9%, driven by revenue growth and limited cost impact from the Middle East conflict in the period.
Adam Vettese, market analyst for eToro, said: “IAG’s Q1 results show the strength of its premium-focused model in a seasonally soft quarter. Operating profit jumped 77% to €351m, lifting the margin to 4.9%, on resilient premium yields, higher load factors and a standout performance from the high-margin loyalty business.”
But the problem for investors is that IAG is now operating in a very different environment, largely as a result of the conflict in Iran.
Garry White, Chief Investment Commentator at Charles Stanley, said: “IAG struck a cautiously confident tone in its first-quarter update, highlighting resilient demand and strong forward bookings, but signalling a clear deterioration in the outlook as fuel costs surge.
“The group pointed to its diversified portfolio, strong brands and balance sheet as buffers against current headwinds, while noting bookings for the second quarter remain in line with historical norms at about 80%.
“However, it has already started to trim capacity growth and warned that profits will come in below earlier expectations as higher fuel prices feed through, with only around 60% of the increase likely to be offset this year. Positively, capital returns remain on track.”
Around 3% of capacity was exposed to the Gulf region pre-conflict, with much of that now redeployed to higher-demand routes, including Bangkok, Singapore, Male, India to the US, and Caribbean and Sri Lanka winter-sun destinations. Iberia and Vueling have shifted Tel Aviv capacity into domestic Spanish routes.
Capacity guidance has been trimmed, with the group now expecting Q2 growth of around 1% and Q3 of around 2%, down from a previous full-year guide of 3%.
The bigger issue is the cost of fuel to facilitate this capacity. Total fuel costs are projected at around €9.0 billion, with IAG hedged at 70% for the rest of the year. Management expects to recover around 60% of the higher fuel cost through revenue and cost actions, but profit will come in below original expectations.
“The impact of the higher fuel price will inevitably lead to lower profit this year than we originally anticipated,” said Luis Gallego, IAG Chief Executive Officer.
IAG shares were 2% lower at the time of writing.