IAG Cuts 2026 Capacity Outlook as Fuel Bill Forecast Eases

LONDON — International Airlines Group (IAG), parent of British Airways (BA), Iberia (IB), Aer Lingus (EI), and Vueling (VY), has removed the capacity growth it planned for 2026 as Middle East suspensions, engine-related aircraft availability, and competitive short-haul markets reshape the group's schedule.

IAG now expects full-year capacity, measured in available seat kilometers (ASKs), to be flat versus 2025, according to its interim report for the six months ended June 30. The group began the year expecting approximately 3% growth.

At the same time, IAG lowered its modeled 2026 fuel cost to a range of €8.3 billion to €8.6 billion, depending on the fuel-price curve used. That is below the approximately €9.0 billion scenario it published in May, but the second-quarter accounts show that fuel remained the main pressure on earnings.

Revenue was broadly stable because higher passenger yields offset lower capacity, the Middle East disruption, and the timing of Easter. Operating profit before exceptional items fell €274 million, however, as the additional revenue and cost actions did not fully recover the higher fuel expense.

Flat Capacity Removes Planned Growth

The change from approximately 3% growth to flat capacity is a reduction in the outlook, not guidance for a 3% contraction in the network.

IAG had already moved away from its original plan in its first-quarter update on May 8. It then expected capacity to increase about 1% in the second quarter and about 2% in the third quarter, while continuing to review the rest of the year. Actual second-quarter capacity declined 0.5%, leaving first-half capacity 0.1% below 2025.

The reasons are not uniform across the network. IAG said the Middle East accounted for approximately 3% of its capacity and that most suspended services to Gulf states, Israel, and Jordan were now expected to remain suspended through year-end. Airways previously covered British Airways' initial response to the Middle East airspace disruption.

Some aircraft were redeployed rather than removed from service. British Airways shifted flying toward South Asia, Africa, and Asia Pacific, while Iberia moved capacity to Japan, Latin America, the North Atlantic, and Spanish island markets. That helped Asia Pacific capacity grow 7.7% in the first half even as capacity across Africa, the Middle East, and South Asia fell 9.4%.

Other reductions reflect different constraints. Iberia cut some short-haul flying because of engine-related aircraft availability, Vueling trimmed selected short-haul routes, and Aer Lingus reduced its schedule by 6% as it removed lower-margin short- and long-haul flying. European capacity fell 2.8% in the first half amid strong competition in price-sensitive leisure markets.

IAG did not publish a complete list of future route or frequency changes attached to the flat full-year outlook. For passengers, the immediate effects are therefore concentrated in already suspended or reduced markets rather than an announced group-wide schedule cut.

Lower Fuel Forecast Does Not Mean Lower Fuel Expense

IAG's new fuel scenarios provide relief compared with the outlook it published in May. A total fuel cost of €8.3 billion to €8.6 billion would be €400 million to €700 million below the earlier estimate of approximately €9.0 billion.

The distinction between a forecast and the expense already recorded is important. First-half fuel costs and emissions charges rose €433 million, or 12.3%, to €3.956 billion. The increase accelerated during the second quarter, when the same expense rose 22.8%.

IAG attributed the increase principally to higher commodity prices following disruption to shipping and oil exports through the Strait of Hormuz. A weaker US dollar provided a €243 million foreign-exchange benefit during the first half, while the group's hedging positions generated €769 million in gains.

Hedging can delay and soften a price increase without eliminating it. Airways has separately explained how airline fuel hedges interact with fares, capacity decisions, and margins. IAG said approximately 60% of its fuel consumption is priced using a prior-month or earlier reference period, which means changes in market prices can take time to appear in its accounts.

The €8.3 billion and €8.6 billion figures are scenarios based on the June 30 and July 27 fuel curves, respectively. They can still change with commodity prices, the euro-dollar exchange rate, hedging outcomes, and the amount of flying IAG ultimately operates.

Demand Is Holding, but Markets Are Diverging

IAG's capacity restraint is not presented as a response to a group-wide collapse in demand. The group said it was approximately 57% booked for the second half, with booked revenue in line with last year. First-half passenger load factor increased 0.9 percentage point to 85.0%, while passenger revenue per ASK increased 2.4%, or 6.2% at constant currency.

The more significant issue is where IAG can recover higher fuel costs through pricing. The group expects long-haul markets to remain positive, while short-haul markets stay competitive.

The North Atlantic, which accounts for about 30% of IAG capacity, produced a 1.7% increase in reported passenger unit revenue during the first half. British Airways' premium position at London Heathrow Airport (LHR) supported performance, while Iberia expanded North Atlantic capacity with its Airbus A321XLR network.

European short-haul markets were more difficult. IAG said competitor growth in price-sensitive leisure markets limited its ability to recover fuel costs through fares. That makes selective winter capacity changes more likely than a uniform reduction across every airline and region, although IAG has not yet identified the affected services.

The pattern is consistent with the wider fuel shock. The International Air Transport Association's June industry outlook estimated that jet fuel would average US$152 per barrel in 2026, almost 70% above 2025, and said hedging smooths short-term volatility without removing exposure to sustained increases.

British Airways Outperformed as Aer Lingus Slipped

The group result also masks substantial differences among IAG's businesses.

British Airways generated £885 million of operating profit before exceptional items in the first half, up £61 million. The improvement came from its strong first quarter; IAG said every airline experienced fuel pressure from March onward.

Iberia's corresponding operating profit declined €38 million to €526 million, while Vueling's fell €49 million to €46 million. Aer Lingus moved from an €80 million profit to a €34 million loss as higher fuel costs combined with stronger North Atlantic competition. IAG Loyalty provided a counterweight, increasing operating profit from £191 million to £239 million.

Those results mark a change from the performance Airways examined when IAG reported record 2025 profit led by British Airways and Iberia. The current problem is not an absence of demand; it is the uneven ability of each business to convert demand into enough revenue to cover a higher cost base.

What Happens Next

IAG continues to expect a full-year operating margin within its 12%–15% target range and significant free cash flow, but it has not provided a precise 2026 operating-profit forecast. It still expects approximately €3.4 billion in capital expenditure and 16 aircraft deliveries this year, although one of three Boeing 787-10s previously due in 2026 has moved to 2027.

The next tests are the winter schedule, the duration of Middle East suspensions, engine-related aircraft availability, and the fuel curve used at the next reporting date. IAG is scheduled to publish third-quarter results on November 6.

Until then, the reduced fuel scenarios improve the range of possible outcomes but do not reverse the cost increase already visible in IAG's accounts. Flat capacity gives the group another lever to protect margins; it does not by itself show which passengers or routes will absorb the final adjustment.