IAG First-Half Profit Drops 21% as Iran War Drives Up Jet Fuel Costs; Iberia Provision €114M

Why IAG's Profit Fell Despite Higher Revenue

International Airlines Group (IAG) reported a 21% drop in first-half net profit to €1,033 million, largely because the Iran conflict pushed the price of kerosene sharply higher. The group managed to pass on about 60% of the extra fuel cost through higher fares, while the remaining burden was absorbed by cost-saving measures and a direct hit to earnings. Revenue rose 1% to €16,064 million, but operating profit before exceptionals fell 6.4% to €1,757 million, lowering the margin from 11.8% to 10.9%.

A second drag came from a one-off €114 million provision related to Iberia's employment regulation file (ERE), under which the airline and unions agreed on 30 March to 996 voluntary departures aimed at renewing the workforce profile, not a net headcount cut. Without that charge, underlying performance held up better than at some rivals such as Ryanair and Air France-KLM.

Passenger numbers edged up 0.2% to 57.9 million despite a 0.1% cut in capacity, leading to a load factor of 85%. The group kept its full-year capacity flat compared with 2025, scrapping earlier plans for 3% growth due to the Iran crisis, and said bookings for the second half stood at 57%, with revenue in line with last year.

IAG still expects to deliver a full-year operating margin within its 12–15% target range and will update shareholders on the 2026 interim dividend at the third-quarter results. A €1.5 billion share buyback programme is under way, with €800 million already completed.

Fuel Hedging, Fleet Moves and the Competitive Squeeze

How IAG Is Managing the Fuel Shock

The Iran conflict and the effective closure of the Strait of Hormuz have sent kerosene prices sharply higher. IAG has hedged 74% of its third-quarter fuel and 65% of the final quarter, but those hedges are now set against elevated market prices. The group passed about 60% of the extra cost onto ticket prices, while disciplined cost control helped absorb the remainder. Its fuel bill estimate has been reduced from €9,000 million to €8,600 million since the end of the first quarter, partly thanks to a recent easing in spot oil.

Iberia’s Strategic Workforce Overhaul

The €114 million provision for Iberia’s ERE is a one-time accounting hit, not an unexpected crisis. The deal secures 996 voluntary departures that allow the airline to renew its staff profile. Combined with the arrival of A321-XLR aircraft for Iberia and Aer Lingus, the group is reshaping both its workforce and fleet for long-haul efficiency. Separately, Vueling will take its first Boeing 737 before year-end, kicking off a wholesale switch from an all-Airbus fleet to Boeing—a multi-year process that will eventually reshape costs and maintenance at the low-cost carrier.

Long-Haul Strength Faces European Headwinds

IAG’s premium long-haul business, particularly on the North Atlantic, remains its profit engine, buoyed by business travel and strong yields. By contrast, intra-European routes are suffering from fierce competition that limits the group’s ability to pass on fuel costs. Iberia cut short-haul capacity due to engine maintenance, and Vueling trimmed some European routes. IAG warned it will “continue to assess capacity for the winter months to ensure profitability”, signalling possible further cuts if fare pressure persists.

What the Results Mean for IAG's Strategy and Investors

• Watch fuel hedging coverage and oil prices: With 74% of Q3 and 65% of Q4 fuel hedged at elevated post-Strait prices, near-term cost visibility is decent, but any further spike in crude would squeeze the unhedged portion and threaten the 12–15% margin goal.
• Capacity discipline is the next lever: Management is actively assessing winter capacity; pruning unprofitable European routes would protect yields and support the margin target. The flat annual capacity guidance depends on no further demand shocks.
• Fleet renewal is a multi-year story: Iberia’s A321-XLR deliveries and Vueling’s Boeing transition will reshape cost structures over time, but the €3.4 billion in planned investments and 16 aircraft deliveries this year keep capital allocation tight. Track delivery timelines and any financing impacts.
• Shareholder returns remain a priority: €800 million of the €1.5 billion buyback is already executed, and a dividend update is due in Q3. Consistent execution of the payout plan would support the share price even as earnings are squeezed.