Sparks - International Airlines Group

International Airlines Group’s (IAG’s) Q326 results demonstrate continued pricing strength, although there is no surprise that higher fuel costs and operational disruption weighed on profitability. Revenue increased by 4.5% to €9.74bn, with passenger unit revenue up 4.1% on capacity down 0.2%. Unit revenue increased across all geographic markets. The modest capacity reduction is mostly due to route suspensions, deliberate cuts in competitive markets and operational disruptions such as air-traffic control outages. Operating profit before exceptional items declined by 15.9% to €1.73bn versus the company-compiled median consensus estimate of €1.81bn (range of €1.54–1.96bn), with the margin contracting by 4.3 percentage points to 17.7%. The principal headwind was a c 30% increase in fuel costs, while disruption and lower capacity than planned contributed to a 3.4% increase in non-fuel unit costs.

The North Atlantic was the standout market, with unit revenue increasing by 11.0% on broadly unchanged capacity, including a 12.0% improvement at British Airways. Latin America and the Caribbean also performed well, combining capacity growth of 5.4% with a 2.3% increase in unit revenue. European competition remains more challenging, prompting capacity reductions to protect profitability, while the suspension of Middle Eastern routes continues to affect aircraft deployment. IAG Loyalty provided further earnings diversification, increasing operating profit by 8% to £152m.

Management continues to expect an FY26 operating margin before exceptional items of at least 12%, within its long-term target of 12–15%, supported by positive revenue trends, with 85% of expected Q4 bookings secured and strong early bookings for Q127. However, the modelling assumptions have weakened a little since H126’s results: capacity is now expected to decline slightly versus flat previously, non-fuel unit costs is expected to rise by around 1% versus flat previously and fuel costs is expected to reach €8.9bn from €8.6bn previously. Lower expected capital expenditure of €3.1bn from €3.4bn previously partly reflects delayed aircraft deliveries. Net leverage of 0.6x supports continued shareholder distributions, with the interim dividend increased by 10% to €0.053 and the final €500m tranche of the existing €1.5bn buyback underway.