London, May 12, 2026, 17:10 BST
- IAG shares hovered around 397.5p late in London, off roughly 3% after starting the session at 407.9p and touching 416.9p at the high. That retraced part of Monday’s strong bond-buyback rally, but didn’t erase it.
- IAG stepped up with cash first, buying back €819 million of its €825 million in 2028 convertible bonds—nearly erasing the threat of share dilution. Operationally, though, fuel remains the wild card.
- Operating profit jumped 77.3% to €351 million in Q1, but management is now bracing for a fuel bill near €9 billion. They’re also dialing back expectations for profit, capacity growth, and free cash flow, each now tracking below previous guidance.
International Consolidated Airlines Group slipped on Tuesday, surrendering some of its previous gains as the focus shifted from balance-sheet repairs to fuel expenses. Shares hovered around 397.5p in late London trade, off 2.98%, with trading volume more than twice the norm. Early in the session, the stock briefly touched 416.9p before losing ground, drifting toward session lows.
The market had a reason to move Monday. IAG snapped up almost its entire batch of 2028 convertible bonds—€819 million out of €825 million was tendered, just €6 million left before a mop-up redemption. These bonds threaten dilution by converting into shares, so shrinking them went down well with equity players. Investors liked the tidier share structure. Still, that doesn’t pump fuel into jets.
The numbers themselves weren’t the issue. IAG turned in first-quarter revenue of €7.18 billion, a 1.9% increase, with operating profit jumping 77.3% to €351 million. Analysts mostly saw revenue coming in as expected, but Simply Wall St flagged statutory profit per share about 50% above predictions. That’s the setup for a stock that might jump at first, then slip back: Q1 delivered, but it’s also the last clean quarter before the impact of the fuel shock shows up.
That’s pretty much what management indicated. CFO Nicholas Cadbury told investors that the first quarter was only lightly affected by higher fuel costs; the bigger hit will come in the quarters ahead. IAG remains 70% hedged for the rest of the year, so it’s protected from some of the volatility, but now projects full-year fuel costs around €9 billion—about €2 billion more than what it projected back in February.
IAG’s pricing muscle is what’s propping up the bull argument, particularly where it counts most: premium seats, transatlantic routes, Latin America, and business flyers. Management, on the call, pointed to a “stronger recovery for sure in long haul and premium markets,” though flagged the squeeze in short-haul Europe—competition’s biting there. That divide is now front and center for the stock. IAIR Group
The bear argument lands hard: hedging just delays the pain—it doesn’t erase cost pressures from persistently higher fuel. IAG has pulled back its capacity growth target, dropping from the 3% it gave in February to around 1% for Q2 and 2% in Q3. Free cash flow? That’s now flagged as coming in below the earlier €3 billion guidance. Push fares too high and leisure travelers could walk away. Too low, and the squeeze lands on margins.
Prediction markets aren’t airline forecasts, but they help explain investors’ hesitation to drive the shares higher. Over on Polymarket’s oil board, there’s an 83% chance WTI crude gets to $105 before June wraps up. Another market gives just a 33% shot that Strait of Hormuz traffic is back to normal pace by the end of June, rising to 48% by July 31. That puts IAG’s fuel costs in play right through the heart of the summer rush.
The sector’s picture isn’t straightforward. On Tuesday, Reuters Breakingviews pointed out that European airlines are pushing ahead with plans to boost intra-Europe capacity by over 5% this summer. This comes as European jet fuel hovers near $1,300 a metric ton—roughly 60% higher than it was before the war. easyJet and Tui have flagged slower bookings; Ryanair, IAG, and Wizz Air, on the other hand, have sounded upbeat about fuel availability. The mix is volatile: expanding seat counts, jittery demand, rising costs.
It’s not just IAG feeling the squeeze—peers are under pressure, too. Last week, Reuters said IAG joined Air France-KLM and easyJet in warning about profit or capacity taking a knock from rising fuel costs. Ryanair’s hedging offers some cover, but if crude and jet fuel stay elevated into summer, the whole sector could remain exposed.
Some see IAG as well-positioned for this kind of disruption: British Airways dominates the Atlantic, Iberia brings Latin America exposure, loyalty revenue is on the rise, and leverage sits at just 0.5 times net debt to EBITDA. J.P. Morgan’s Harry Gowers told Reuters he thinks the group’s “resiliency” and free cash flow will show through the conflict. Morningstar’s Loredana Muharremi also put IAG and Ryanair in the higher-margin camp—carriers better equipped to deal with fuel price spikes. Reuters
Even so, what happened Tuesday shows investors are after evidence, not just moves on paper. The bond buyback clears up a chunk of capital-structure uncertainty. But the main question sticks: Can IAG really push about 60% of higher fuel costs onto customers without hitting demand—particularly beyond the premium long-haul segment? That tension leaves the stock looking fundamentally stronger than expected, yet still down on the session.
The focus now shifts to bookings instead of just barrels. IAG reports that about 80% of second-quarter revenue is already booked, matching typical levels, and says there’s no major fuel supply worry for the summer. Should those bookings solidify and fares remain elevated, talk about buybacks could resurface for the shares. But if oil prices hold up and travelers pull back, that slip on Tuesday might end up being more than just a bit of profit-taking—it could be the market trimming expectations for the year.
