Soaring fuel costs hit profit at British Airways owner IAG

British Airways owner IAG has taken a hit to its profit due to “very high” jet fuel prices, which industry bosses have warned could force some airlines into collapse next year.

The London-listed firm, which also owns airlines Vueling and Aer Lingus, saw its pre-tax profit dip 16 per cent to €3bn in the nine months to the end of September.

The group blamed this hit to profit on the “significant increase in jet fuel prices from March onwards,” which was caused by the closure of the Strait of Hormuz following the outbreak of war in the Middle East.

Airlines have mostly kept a lid on rising energy costs so far this year but have warned that prices are set to continue rising into next year, pushing up costs for passengers.

Luis Gallego, IAG’s chief executive, noted the “very high price of jet fuel” in his statement to shareholders on Friday. 

The group’s fuel costs – including emissions charges – have surged 19 per cent since last year, with total spend reaching €6.4bn in the year to date. 

IAG said this was “driven principally by a significant increase in average commodity fuel prices from the end of February 2026 onwards, linked to the conflict in the Middle East and the disruption to shipping and oil exports through the Strait of Hormuz.”

Fuel costs to rise next year

Airlines have been able to insulate passengers from cost increases caused by rising fuel costs through hedging, which means the agreement of fixed-price contracts for their energy needs. 

But the amount of fuel which airlines can buy at a fixed price is set to fall significantly into next year. While IAG has hedged about 70 per cent of its needs in the current financial year, it has only hedged 45 per cent of its requirements for 2027. 

Similarly, budget carrier Ryanair has hedged about 80 per cent of its fuel needs in the current year at €67 per barrel but this protection is set to slip to only 25 per cent hedged at about €95 per barrel from next year.

The Dublin-based airline said earlier this week that it is considering pay freezes and AI efficiency drives to absorb €2bn in higher fuel costs next year.

IAG’s Gallego said the group’s airlines are benefitting from “robust” customer demand, as its revenue grew 4.5 per cent to €9.7m in the third quarter. The firm hiked its dividend by 10 per cent to €0.053 per share.