Middle East Conflict and Fuel Costs Hit British Airways Owner's Profits
International Airlines Group lowers capacity outlook due to soaring fuel expenses and suppressed travel demand.
The owner of British Airways, International Airlines Group (IAG), has reduced its annual capacity outlook, with first-half profits falling significantly due to escalating fuel costs and subdued travel demand, particularly for destinations near the Middle East.
IAG announced that its capacity for 2026 will remain flat compared to 2025, a downward revision from earlier projections of approximately 3% growth. This adjustment comes as the airline group reported a 35% slump in profits for the three months ending June 30, dropping to £626 million from £940 million a year prior. Sales saw a marginal increase of 0.2% to £7.6 billion.
High fuel costs and increased emissions charges were cited as primary reasons for the profit decline. IAG indicated that consumers have been less inclined to book holidays to regions such as Cyprus and Turkey, areas affected by the ongoing conflict in the Middle East. "Consumers have been less keen to book holidays near the Middle East, including Cyprus and Turkey," the company stated.
Furthermore, IAG's chief executive Luis Gallego noted that the European market is highly competitive, with significant capacity growth from ultra-low-cost carriers. These budget airlines have limited IAG's ability to pass on increased fuel costs through ticket prices, as they are adding more flights in the region. "In Europe, budget airlines putting on more flights have limited our ability to recover the fuel cost increase through pricing," IAG said.
The airline group plans to offset about 60% of its increased fuel expenses through higher ticket prices and cost-cutting initiatives. While long-haul markets are expected to remain positive, IAG anticipates short-haul routes will continue to be competitive. Approximately 57% of its seats for the latter half of the year have already been booked.
This outlook from IAG follows a similar sentiment from rival Ryanair, which recently reported that it had to lower summer ticket prices due to weaker customer demand, impacting its profits.