British Airways owner IAG flags strong demand amid profit shortfall
International Consolidated Airlines Group SA on Friday said it was on track to deliver full-year market expectations, despite a third-quarter profit miss, as it highlighted a positive demand outlook.
Shares in the Madrid-based owner of airlines such as British Airways, Iberia, and Aer Lingus were up 0.9% at 430.65 pence each in London on Friday, one of a handful of risers on the FTSE 100, which was down 1.5%.
IAG said operating profit fell 16% to EUR1.73 billion in the three months ended September 30 from EUR2.05 billion a year earlier, below the company's compiled consensus of EUR1.81 billion.
"Strong pricing was offset by lower capacity, the impact of one-off disruption events and in particular by higher jet fuel prices," IAG said in a statement.
Revenue rose 4.4% to EUR9.74 billion from EUR9.33 billion on-year, but the operating margin before exceptional items declined to 17.7% from 22.0%.
IAG said revenue growth was driven by long-haul yields across all of its main markets. It noted "very strong" performance in the North and South Atlantic and said positive revenue trends are continuing for the fourth quarter and into 2027.
Looking ahead, IAG said it continues to expect good revenue growth, with 85% of expected forward bookings for the fourth quarter now secured. Bookings for the first quarter of 2027 are currently "strong," it added.
Less positively, the European market has been more "challenging" due to high levels of competitor capacity growth, and IAG said it has cut capacity by 1.2% mainly at Iberia and Vueling to protect profitability.
Passenger revenue increased by 3.8% in the quarter from a year ago, cargo revenue rose by 3.9% as IAG targeted premium traffic and pricing and other revenue advanced by 11%, as IAG Loyalty delivered another "good" quarter of growth.
Non-fuel unit cost increased by 3.4%, impacted by disruption during the quarter, including major air traffic control outages, partly mitigated by the ongoing benefit of cost-saving initiatives.
Total fuel costs increased by 30% in the third
quarter on-year, net of the benefit of hedging. IAG expects total fuel costs of EUR8.9 billion in 2026 and said it is currently 45% hedged for 2027.
The airline raised its third-quarter dividend by 10% to 5.3c from 4.8c a year ago and said it has started the final EUR500 million tranche of its EUR1.5 billion share buyback programme, which it expects to complete by the end of February.
For the first nine months of 2026, revenue grew 2.3% to EUR25.81 billion from EUR25.23 billion, operating profit fell 15% to EUR9.74 billion from EUR9.33 billion, and basic earnings per share dropped 12% to 50.6 euro cents from 57.2 cents. No third-quarter EPS figure was provided.
IAG Chief Executive Luis Gallego called it a another "resilient" quarter.
"Our strong yield performance in all our markets reflects robust ongoing customer demand for travel for our airline brands. For the quarter, we have achieved an operating margin before exceptional items of 17.7%, despite the very high price of jet fuel and a number of one-off disruption events, clearly demonstrating the quality of our business," he said.
IAG said it was on track to deliver another year of "world-class operating margins, profits, free cash flow and shareholder returns."
It continues to expect to deliver an operating margin before exceptional items in 2026 of at least 12%, within its through-the-cycle target range of 12% to 15%.
Full year capacity is expected to be slightly down compared to 2025, driven by the "absence of Middle East capacity, the impact of disruption events to date across our airlines and our disciplined, proactive capacity management as we focus on profitable flying in a seasonally quieter final quarter."
IAG expects 2026 non-fuel unit cost to increase by around 1% "as a result of the impact of the disruption on the group over the last few months, as well as the impact from lower flown capacity than planned".
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