IAG Q2 profits fall as Aer Lingus loss and fuel costs weigh; Vueling to get first 737 Max jets

International Airlines Group (IAG) reported a 25% decrease in operating profit and a 35% decline in net profit for the April to June quarter of 2026, impacted by a loss-making Aer Lingus and sharply higher fuel expenses. Operating profit fell to €1.26 billion from €1.68 billion last year, while net profit dropped to €732 million from €1.13 billion, according to its recent financial results. Despite revenues remaining relatively flat at €8.88 billion, the group's fuel costs and emissions charges surged nearly 23%, putting pressure on margins across the portfolio.

Within IAG’s brand portfolio, British Airways delivered the strongest profitability in the first six months of 2026, increasing its operating profit by €61 million to €885 million before exceptional items compared to the prior year. Conversely, Aer Lingus stood out as the group's sole carrier reporting an operating loss during the period. The carrier suffered from additional fuel costs combined with softer passenger revenues influenced by heightened competition on North Atlantic routes, which have long been critical to its business.

Earlier in July, Aer Lingus announced plans to cut capacity by 6% later in 2026, including the termination of three U.S. routes and reductions in its workforce as part of efforts to manage competitive pressures on transatlantic services. Aer Lingus CEO Lynne Embleton expressed confidence in eventually achieving the group’s target operating margin range of 12-15%, asserting that achieving this would be essential to attract investment for new aircraft acquisitions. She emphasized that while some cost measures could be implemented quickly, increases in premium economy offerings and other business investments would take longer to translate into improved profitability.

Embleton also highlighted the potential efficiency gains from new-generation aircraft, stating that securing modern planes would likely take Aer Lingus beyond the 12% margin hurdle. She reiterated the carrier’s commitment to 'getting our house in order' and bringing its financial metrics closer to the group’s investable margins to support growth and modernization strategies.

Meanwhile, IAG is advancing its fleet modernization at low-cost carrier Vueling with the anticipated delivery of the first three Boeing 737 Max 8-200 aircraft toward the end of 2026. Vueling intends to transition fully to a Boeing narrowbody fleet, with a total of 60 737 Max jets planned over time. IAG CEO Luis Gallego underscored the expected significant cost reductions from this fleet renewal. Vueling will also become the first European low-cost airline to offer in-flight internet via SpaceX’s Starlink, which will be equipped on the new aircraft.

Other aircraft deliveries scheduled for the remainder of 2026 include six Airbus A320neos, six A321neos, and two Boeing 787-10s. IAG has already received three aircraft in the first half of the year, including one A320neo and two A321XLRs. The group is close to receiving its last A321XLR from existing firm orders, with options for more, and remains deliberative about further acquisitions and fleet allocation strategies.

Capacity across IAG for the full year is expected to remain flat after a slight 0.1% decrease during the first half, mainly due to suspensions on Middle East routes sparked by regional conflicts and engine availability issues impacting aircraft utilization. While some softness is apparent in intra-European travel demand, robust premium demand on transatlantic routes is helping the group offset 60% of its additional fuel cost burden through revenue growth and cost initiatives.

IAG’s fuel hedging strategy covers 70% of the remainder of 2026 and 40% of 2027, providing some protection against volatile prices. Overall, the group stated that demand remains strong, with 57% of its second-half revenue already booked, matching levels from the previous year. As IAG navigates cost pressures and competitive headwinds, its ongoing transformation programs and strategic fleet updates appear pivotal to achieving its targeted full-year operating margin between 12% and 15%.