British Airways Owner IAG Cuts Capacity Outlook as Fuel Costs and Middle East Conflict Weigh on Profits

Post by : Saif

International Airlines Group (IAG), the parent company of British Airways, has reduced its 2026 capacity outlook to flat growth after reporting a 16% decline in second-quarter operating profit.

The airline group attributed the weaker financial performance to rising fuel prices, higher emissions costs and softer travel demand linked to the ongoing conflict in the Middle East.

Fuel and Emissions Costs Continue to Rise

IAG said fuel expenses and emissions charges increased by nearly 23% during the second quarter, reaching €2.22 billion.

Despite the higher costs, the company slightly lowered its full-year fuel cost forecast to between €8.3 billion and €8.6 billion, compared with an earlier estimate of around €9 billion.

The revised outlook reflects changes in fuel price expectations and the company's hedging strategy.

Capacity Growth Forecast Reduced

Earlier this year, IAG expected capacity growth of less than 3%. The company has now revised that outlook, saying overall capacity for 2026 is expected to remain broadly unchanged.

The decision reflects uncertainty in global travel markets as airlines continue to deal with higher operating costs and changing passenger demand.

Bookings Remain Stable Despite Challenges

IAG said approximately 57% of its second-half capacity has already been booked, with revenue levels broadly matching the same period last year.

Demand for premium travel on key transatlantic routes remains resilient, particularly for British Airways, helping offset weakness in other parts of the network.

The company also expects to recover around 60% of its higher fuel costs through increased ticket prices and ongoing cost-control measures.

Read more: Rising Jet Fuel Prices Force US Airlines to Revise 2026 Earnings Forecasts

European Airlines Face Similar Pressure

The Middle East conflict has increased fuel prices across the aviation industry, forcing several European airlines to revise financial forecasts.

Airlines including Ryanair, easyJet, and Air France-KLM have also warned that rising fuel costs and geopolitical uncertainty are affecting profitability and future capacity planning.

Many carriers are reassessing fuel hedging strategies while implementing additional cost-saving measures to manage financial pressure.

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