International Consolidated Airlines Group (LON:IAG) reported record third-quarter revenue and maintained its full-year operating margin target, as strong transatlantic demand helped offset higher fuel costs and disruption to flights.
Revenue rose 4.5% from a year earlier, while operating profit fell by €327 million to €1.726 billion, with a 17.7% margin. Chief Executive Officer Luis Gallego said yields were positive across all markets, with particularly strong performance on North and South Atlantic routes.
“We have performed well this quarter despite the headwinds that we and the industry face,” Gallego said. The group continues to expect a full-year operating margin of at least 12%.
Fuel costs weigh on profit
Chief Financial Officer José Antonio Barrionuevo said fuel was the quarter’s largest headwind, with costs rising €565 million as the Middle East conflict pushed up jet fuel prices. Hedging partly offset the increase. Passenger revenue rose €334 million, while cargo revenue increased €16 million as stronger pricing outweighed lower volumes.
Non-fuel unit costs rose 3.4%, partly because of lower-than-planned capacity, air traffic control outages, Heathrow baggage system failures and engine-related costs at Iberia. Barrionuevo said the underlying increase was about 0.5% after accounting for those and other factors, including higher third-party maintenance activity and foreign exchange.
Capacity was broadly flat, below the company’s earlier expectation of around 1% growth. Barrionuevo attributed the shortfall to continued Middle East disruption and flight cancellations, including those caused by U.K. air traffic control issues.
Gallego said IAG was removing capacity for the winter season to support revenue and profitability. The group expects to recover more than 80% of its full-year fuel cost increase, and more than 100% at British Airways. He noted that recovery includes revenue measures and other actions to mitigate costs.
Transatlantic demand supports airlines
Passenger unit revenue rose 4.1% in the quarter, or 4.3% at constant currency. The North Atlantic was the strongest market, with unit revenue up 11% on broadly flat capacity. Latin American unit revenue rose 2.3%, despite a 5.4% increase in capacity.
Every IAG airline recorded a double-digit operating margin, Barrionuevo said:
- British Airways reported £602 million in operating profit and a 14.4% margin. Unit revenue rose 5.8%, supported by North Atlantic and business travel.
- Iberia delivered €452 million in operating profit and a 19.6% margin, while increasing capacity by 4.4%.
- Vueling posted €257 million in operating profit and a 23.8% margin, the highest in the group.
- Aer Lingus reported €142 million in operating profit and a 17.4% margin during its seasonally strongest quarter.
IAG Loyalty reported operating profit of £152 million at an 18.9% margin. On an underlying pre-HMRC basis, profit rose more than 13% to £171 million, as growth in the core loyalty business was partly offset by lower holidays profit.
Bookings and capacity outlook
Gallego said the group had secured 85% of its expected fourth-quarter bookings and was seeing strong bookings for the first quarter of 2027, although it remained early in the booking cycle. He said the improvement in passenger unit revenue was running above the third-quarter rate, with Europe strengthening and the North Atlantic remaining resilient.
British Airways Chair and CEO Sean Doyle said business demand was strong in finance and technology, as well as among smaller companies. He said the airline was benefiting from connecting traffic between the U.S. and markets such as India as some corporate travelers bypassed Gulf gateways.
For 2027, Gallego said it was too early to settle capacity plans, partly because the group is resuming some Middle East services. In principle, he expects capacity growth below the mid-single digits.
Aer Lingus Chair and CEO Lynne Embleton said she expected competition to remain challenging next year. Although the airline was not seeing significant additional transatlantic capacity from competitors in 2027, she said the market still needed to absorb growth from recent years.
Fleet delays and shareholder returns
IAG now expects 12 aircraft deliveries in 2026, down from 16 forecast at the half year, with three Boeing 737s for Vueling and one Airbus A321neo for British Airways moving into 2027. Gallego also said the Boeing 777-9 is now expected in 2028.
The company reduced its full-year capital expenditure expectation to about €3.1 billion from €3.4 billion. Net debt fell to €4.2 billion at the end of the quarter, from €4.7 billion at the half year.
IAG increased its interim dividend per share by 10% alongside its ongoing €1.5 billion share buyback. Barrionuevo said the group expects free cash flow in 2026 to be not far from its approximately €3 billion guidance and is not contemplating negative free cash flow in 2026 or 2027. The company plans to update investors on its approach to future buybacks in February 2027.
About International Consolidated Airlines Group (LON:IAG)
International Consolidated Airlines Group SA, together with its subsidiaries, engages in the provision of passenger and cargo transportation services in the United Kingdom, Spain, the United States, and rest of the world. It also provides aircraft leasing, aircraft maintenance, tour operation, air freight operations, call centre, ground handling, trustee, retail, IT, finance, procurement, storage and custody, aircraft technical assistance, human resources support, and airport infrastructure development services; and manages airline loyalty programmes.
