IAG half-year results 2026: fuel costs squeeze profit despite strong cash flow

International Consolidated Airlines Group has reported a resilient first half of 2026, with strong travel demand and disciplined cost control helping it navigate higher fuel prices and disruption linked to the Middle East crisis.

The owner of British Airways, Iberia, Aer Lingus, Vueling and LEVEL increased first-half revenue by 1.0% to €16,064 million. However, operating profit before exceptional items fell 6.4% to €1,757 million as fuel costs rose and capacity came in below plan.

The key question for investors is whether IAG can protect its margins while dealing with those headwinds. Management remains confident, maintaining its expectation for a full-year operating margin within its 12% to 15% target range.

IAG's first-half results at a glance

Metric	H1 2026	H1 2025	Change
Revenue	€16,064 million	€15,906 million	1.0%
Operating profit	€1,608 million	€1,878 million	-14.4%
Operating profit before exceptional items	€1,757 million	€1,878 million	-6.4%
Operating margin before exceptional items	10.9%	11.8%	-0.9 percentage points
Profit after tax	€1,033 million	€1,301 million	-20.6%
Adjusted earnings per share	23.6 euro cents	26.5 euro cents	-10.9%
Free cash flow	€2,905 million	€2,097 million	38.5%
Net debt	€4,692 million	€5,948 million	Down €1,256 million

Alternative performance measures exclude certain items that management believes make underlying trading easier to assess. In this period, exceptional items related to restructuring costs within employee expenses.

The reported numbers therefore show a sharper decline than the underlying figures. Reported operating profit fell 14.4% to €1,608 million, while profit after tax dropped 20.6% to €1,033 million.

Revenue held up, but profitability weakened

IAG continued to benefit from strong demand for travel. First-half passenger capacity, measured in available seat kilometres, was broadly flat, falling 0.1%, while passenger revenue per available seat kilometre increased 2.4%.

That suggests the group generated more passenger revenue from each unit of capacity. It helped revenue grow despite fewer seats being flown than originally planned.

The second quarter was more difficult. Revenue increased just 0.2% to €8,883 million, while operating profit before exceptional items fell 16.3% to €1,406 million. The adjusted operating margin declined from 19.0% to 15.8%.

IAG said increased yields, meaning revenue generated per unit of passenger capacity, offset lower capacity, disruption from the Middle East crisis and the timing of Easter. The main pressure on profit came from higher fuel costs.

The company estimates that it recovered around 60% of the fuel cost increase through revenue growth and cost initiatives. That is in line with its previous guidance, but it still leaves a meaningful portion of the increase hitting earnings.

Cost control provided some protection

One encouraging feature was IAG's control of expenses outside fuel.

First-half non-fuel cost per available seat kilometre fell 1.3% to 6.10 euro cents. In the second quarter, it declined 1.7% to 5.81 euro cents.

That performance matters because lower-than-planned capacity can make unit costs harder to control. Fixed expenses have to be spread across fewer flights and seats. Despite that challenge, IAG delivered non-fuel unit costs in line with its earlier guidance.

Management now expects non-fuel unit costs to be flat for the full year, including a foreign exchange benefit of around one percentage point. However, this guidance also reflects significantly lower capacity growth than previously expected.

Free cash flow and the balance sheet stand out

The strongest part of the announcement was cash generation.

Free cash flow increased from €2,097 million to €2,905 million. This measures the cash left after operating requirements and investment spending, although investors should note that the improvement benefited from the timing of aircraft deliveries and a comparison with the previous year's payment to HMRC.

In other words, the increase was not entirely driven by stronger underlying profit.

Even so, IAG's financial position improved. Net debt fell by €1,256 million from the end of 2025 to €4,692 million, while net debt to EBITDA before exceptional items declined from 0.8 times to 0.6 times. EBITDA is earnings before interest, tax, depreciation and amortisation.

Total liquidity reached €11,873 million, including cash, deposits and committed undrawn financing facilities. Gross leverage stood at 1.8 times.

This gives IAG room to invest in its fleet while continuing shareholder distributions. The final 2025 dividend was paid in June, and the group continues to execute its excess cash return. The value and structure of that remaining return were not disclosed in this announcement.

Full-year guidance remains intact

IAG expects travel demand across its network to remain strong. It is around 57% booked for the second half, with booked revenue in line with the previous year.

Management expects long-haul markets to remain positive, although it described short-haul markets as competitive. Capacity is now forecast to be flat in 2026 compared with 2025.

The group has provided a full-year fuel cost range of €8.3 billion to €8.6 billion, depending on the market price curve used. Its hedging policy remains unchanged, and it still expects to recover around 60% of higher fuel costs through revenue and cost measures.

Capital expenditure is expected to be around €3.4 billion, with 16 aircraft now due for delivery during 2026.

Most importantly, IAG continues to target a full-year operating margin of 12% to 15%, supported by benefits from its long-term transformation programme. It also expects significant free cash flow and a strong balance sheet.

What the results mean for IAG investors

There is plenty for shareholders to like. Demand remains resilient, revenue is growing despite flat capacity, non-fuel unit costs are controlled and the balance sheet has strengthened. IAG Loyalty is also described as continuing to deliver high growth, high margins and strong free cash flow, although detailed figures for that division were not included in this announcement.

The negatives are equally clear. Profit and earnings declined, the adjusted margin narrowed and fuel inflation remains a substantial drag. Geopolitical disruption has also forced IAG to reduce capacity expectations, while short-haul competition could limit pricing power.

Investors should therefore watch whether the group can deliver its 12% to 15% full-year margin target, maintain its 60% fuel cost recovery rate and convert robust demand into improved profit performance during the second half.

For continuing coverage, visit the International Consolidated Airlines Group share page. The detailed financial statements and accompanying disclosures are available in the original company announcement.