IAG Earnings: Strong Profit, Low Leverage, but Higher 2026 Fuel Bill Forces Modest Fair Value Cut

Key Morningstar Metrics for International Consolidated Airlines Group

• Fair Value Estimate
  : GBX 483
• Morningstar Rating
  : ★★★★
• Morningstar Economic Moat Rating
  : None
• Morningstar Uncertainty Rating
  : High

What We Thought of International Consolidated Airlines Group’s Earnings

International Consolidated Airlines Group IAG delivered an operating profit of €351 million (margin 4.9%) on 1.9% revenue growth, with passenger unit revenue up 8.2% at constant currency and net leverage reduced to 0.5 times EBITDA.

Why it matters: Fuel unit costs rose only 0.9% due to hedging and pricing timing, but the quarter captured limited Middle East fuel impact. International Consolidated Airlines now expects a 2026 fuel bill of about €9 billion, roughly €2 billion above the scenario outlined at year-end.

• Management aims to offset about 60% of the €2 billion fuel increase through higher yields, a premium mix, and cost measures, with stronger recovery on long-haul and premium routes than on competitive European short-haul routes.
• Strong North and South Atlantic demand and high-margin Loyalty growth (profit plus 32.6%) support revenue resilience into the summer.

The bottom line: We view IAG as entering the fuel shock from a position of strength, with net leverage of 0.5 times, high margins, and an asset‑light Loyalty engine able to absorb a substantial fuel-and-disruption shock. We slightly lower our fair value estimate by 5% TO GBX 458, but expect the long-term thesis to remain intact.

• Capacity growth for 2026 has been trimmed from about 3% to roughly 1%, as IAG cancels Middle East flying and redeploys aircraft to Asia, the Caribbean, and core domestic routes, focusing on yield protection.
• IAG owns or controls part of the fuel logistics in some key airports (for example, in the UK and Spain). Because of this “self‑supply” capability, it is less exposed than many peers to jet‑fuel shortages or disruptions.