The ongoing military conflict involving Iran is having a significant impact on the global aviation industry and is increasingly reflected in the balance sheets of European aviation companies.
International Airlines Group (IAG), parent company of airlines such as British Airways, Iberia, Vueling, Aer Lingus, and Level, is adjusting its financial and capacity planning for the current fiscal year. This is due to the significant rise in kerosene prices on the commodity markets. The group now estimates its total fuel costs for the year at €8,6 billion, an increase of €300 million compared to its forecasts from the end of June. As a result, management is abandoning its original target of increasing its seat capacity by three percent in 2026 and now expects capacity levels to remain stable. Investors reacted cautiously on the London Stock Exchange, causing a noticeable decline in the group's share price.
Development of key figures in the second quarter of 2026
IAG's financial results for the second quarter of 2026 highlight the increased cost burden in flight operations. Adjusted for special items, operating profit decreased by 16 percent year-on-year to €1,41 billion. Group revenue remained virtually unchanged at €8,89 billion, the same level as the previous year. Net income for the period fell by more than a third to €732 million.
Management is attempting to mitigate the financial pressure through operational countermeasures. The company currently expects to offset approximately 60 percent of the fuel-related additional costs by adjusting ticket prices and implementing targeted efficiency programs within its operations. Nevertheless, the market environment limits the scope for price increases, as rising airfares combined with general inflation could dampen passenger demand.
Restructuring and staff adjustments at Aer Lingus
The increased operating costs are affecting the group's individual subsidiaries to varying degrees. The Irish airline Aer Lingus, in particular, is under pressure to adapt on its core routes. To counteract the fuel-related cost increases and intensified competition in North Atlantic traffic, the airline plans to cut up to 500 jobs. In addition, unprofitable flight connections within the route network are to be canceled or their frequency reduced.
The North Atlantic market, traditionally one of Aer Lingus' most profitable segments, is characterized by changing market dynamics. In addition to higher fuel costs, increased seat capacity from competing US and European airlines is putting pressure on margins. The planned restructuring at Aer Lingus aims to adapt the company's fixed cost structure to this altered environment.
Industry-wide effects of kerosene price developments
IAG's business performance is not isolated but reflects an industry-wide trend. The changed situation in the Middle East has led to geopolitical uncertainties that directly impact international crude oil prices and refinery margins for Jet A1 fuel. This forces airlines to continuously reassess their fuel hedging strategies.
European low-cost carriers are also reporting similar impacts on their interim results. Airlines Ryanair and Easyjet also reported declines in earnings for the past reporting periods, explicitly citing increased fuel costs. For the entire aviation industry, the combination of high kerosene prices and ongoing detours due to airspace closures in the Middle East is making it difficult to maintain the usual profitability during the summer travel season.
Outlook for the second half of the year and the market environment
Visibility regarding commodity prices remains limited for the remainder of the financial year. IAG's management continues to rely on the interplay between network carriers British Airways and Iberia, as well as point-to-point providers Vueling and Level, to serve different market segments. The recovery on Iberia's Latin American routes, in particular, is contributing to the overall result.
Nevertheless, recent decisions demonstrate that flexibility in capacity management remains the key lever for European airline groups. Should tensions in the Middle East persist and fuel costs remain elevated, further consolidation and adjustments to flight schedules in the European air transport market may become necessary.