British Airways parent IAG has warned that airfares will likely
continue to rise in the coming months due to increased fuel costs caused
by the Iran war.
Chief executive Luis
Gallego in an earnings call on Friday said elevated fuel prices will "inevitably" lead to lower
profits this year.
The company's capacity growth forecasts for
2026 have also been revised downward from 3 percent to approximately 1
percent, despite the redeployment of "a large part" of its Middle East
capacity to routes in Asia and Africa. Gallego added that connections to
the Middle East currently account for 3 percent of the group's total
capacity.
IAG, which also owns Iberia, Aer Lingus, Level and
Vueling, expects its total fuel bill for 2026 to hit €9 billion—€2 billion higher than earlier predictions. This is in line with similar
cost increases noted by European rivals Lufthansa Group and Air France-KLM.
Like
its European competitors, IAG said its rising fuel costs will be "partially offset" by its fuel hedging strategy and that its airlines
remain 70 percent hedged for the remainder of the year.
Nevertheless,
Gallego said "we need to increase fares in order to mitigate the impact
of fuel," adding that long-haul and premium markets would be the focus,
while fare increases on short-haul, intra-Europe routes would prove "difficult" due to regional competition.
When questioned on the "stickiness" of elevated ticket prices, Gallego said "trading remains
positive across the group, and very strong, with resilient demand. So,
we don’t see any weakness for the time being." Additionally, outgoing finance chief Nicholas Cadbury shared that 80 percent of the group’s Q2 capacity has already been sold, and Q3 sales have reached 40 percent so far.
Despite fears of dwindling fuel stocks
across Europe, Gallego said "we are confident of jet fuel supply in our
main markets throughout the summer. Today the situation is more about
the price of fuel than availability."
He added: "If the current
conflict continues to restrict flows of both crude oil and jet fuel from
the Middle East, there is the potential for supplies of jet fuel to be
restricted on a global basis. We are engaging with governments in each
of our home markets as well as with the EU to ensure that the industry
is getting the support it needs to navigate this situation."
Pointing to the recent closure of U.S. budget carrier Spirit, Gallego said the conflict could result in further consolidation across the aviation sector.
"The
current environment may create consolidation opportunities, but at IAG
we are always highly disciplined about these opportunities,” he said,
referring to the group’s recent decision to bow of out a privatization bid for TAP Air Portugal.
"We
are well-hedged so we will manage this crisis much better than others," Gallego added. "We are sure that some airlines in Europe will have
difficulties, so they will need to reduce capacity. That can be an
opportunity for us… So, we expect to be even stronger after this crisis
than we were before."
Q1 metrics
IAG reported a 1.9
per cent year-on-year increase in revenues for the first quarter,
reaching €7.16 billion. This was driven by strong premium demand
across the group's transatlantic network, where business travel was "notably strong" from North Atlantic points of sale, particularly for
British Airways.
Operating profit for the group increased by 77.3
percent to €351 million as the quarter was "relatively unaffected" by
the Middle East conflict. However, higher fuel costs are expected to
have a "more substantial impact" in the coming months.
IAG's total
capacity for the quarter—measured in available seat kilometers—increased 0.2 percent compared to the previous year, while passenger
revenue per ASK improved 3.5 percent year on year.
British
Airways posed an operating profit of £186 million for the quarter, up
£90 million year on year. Iberia's profit rose €27 million to €614
million. Aer Lingus and Vueling, however, reported losses of €103
million and €28 million, respectively, with the Irish carrier facing
higher fuel costs and more competition on transatlantic routes.
IAG Loyalty's profit grew £28 million to £116 million.