British Airlines Owner Warns Iran War Will Wipe Out 2026 Profits

The owner of British Airways has warned that the war in Iran will hit the group with a €2bn fuel bill shock this year, taking the gloss off a set of first-quarter numbers and forcing the City to tighten its expectations.

International Airlines Group (IAG), the FTSE 100 carrier that also owns Iberia, Vueling and Aer Lingus, has told shareholders that rising jet fuel prices caused by the closure of the Strait of Hormuz, a chokepoint through which almost a fifth of the world’s oil and gas flows, will increase its annual fuel costs from 29 billion to 2 billion euros.

Despite this warning, Luis Gallego, the chief executive, hit the ground running, insisting that the group was “put in a different position” to end the chaos. Sadly, IAG said it had no plans for mothballed routes, having locked in assets through its own supply arrangements for its main hubs.

“At the moment we do not see any problems with the availability of fuel in our major markets, especially since we are benefiting from the strength of the supply chain, stocks and especially our supply systems in our key areas,” said Mr. Gallego. “We are confident about the availability of fuel in the summer.”

The assurance will be welcomed by holidaymakers and the City alike, who fear a repeat of the chaos that plagued European carriers during the previous oil shock. Mr Gallego pointed to the group’s “leading positions in all different markets, strong companies, structurally high margins and a strong balance sheet” as a buffer against the country’s strife.

In a clear sign of confidence, IAG has confirmed it will go ahead with its €1.5 billion share buyback, a plan it green-lit only a day before US and Israeli forces launched strikes on Iran in late February. The conflict has since dominated a third of the airline’s first trading quarter.

The numbers, in fact, suggest that the team went into battle with the wind behind them. Revenue increased by nearly two percent to €7.1 billion in the three months to the end of March, while pre-tax profit jumped by 77 percent to €351 million, driven largely by strong demand for premium economy, business and first-class seats on the most important transatlantic corridor. North Atlantic flying takes up about half of IAG’s capacity, and well-heeled travelers turning left as they board are a disproportionate driver of its margins.

IAG said it had hedged about 70 percent of its fuel needs for the year, buying kerosene or issuing financial instruments to reduce its exposure to the costs. The group agreed that the split would not last forever.

“Although the first quarter was not affected by the conflict in the Middle East, we expect it to have a significant impact during the rest of the year as the increase in fuel costs begins to show,” said the company.

Conclusion: profits in 2026 will decrease from the average recorded at the beginning of the year. IAG has booked an operating profit of more than five billion euros by 2025, and analysts were predicting earnings growth of up to 10 percent this year before the Iran outbreak sent oil markets reeling.

The Middle East is not the only soft spot on the route map. IAG marked that demand in the eastern Mediterranean, predictably, weakened, while the European short-haul market, where British Airways and Vueling go toe-to-toe with Ryanair and easyJet, “remains competitive”. Aer Lingus, meanwhile, continues to feel the heat from American carriers piling up capacity on the lucrative Ireland-United States corridor.

For SME suppliers across the British and Irish aviation supply chain, from aircraft suppliers to ground managers and MRO specialists, the message is mixed. My strength, premium demand is strong, and IAG’s sales machine is still firing. But as the airline’s profit-making ambitions are curtailed by geopolitics, the pressure on margins is bound to come down to food shillings in the near future.

For investors, the general reading is familiar: IAG remains one of the strongest operators in European aviation, but the Iran war has reminded the market that even the most efficient airlines fly at the mercy of oil prices.