British Airways fares will rise to help offset a €2bn (£1.7bn) increase in fuel costs this year, according to its parent company, the International Airlines Group (IAG). The group, which also owns Aer Lingus, Iberia, Vueling, and Level, said the Iran war will dent profits despite hedging 70% of its expected fuel usage for 2025.
Fuel Bill Surge and Hedging Strategy
IAG now forecasts its annual fuel bill at approximately €9bn, up from a previous estimate of €7.1bn, reflecting the sharp rise in jet fuel prices since the conflict began. However, the group has hedged 70% of its supply, shielding it from the full impact of soaring prices. Global oil prices have reached peaks of $126 per barrel, compared to $72 just before the war, though they traded at just above $100 per barrel on Friday.
The group expects to recover about 60% of the additional €2bn fuel costs through what it calls “revenue and cost management actions.” This recovery will primarily come from fare increases on British Airways, rather than its sister airlines.
Fare Increases and Impact on Consumers
Luis Gallego, chief executive of IAG, stated: “Unfortunately, for example, BA that is a more premium brand, they are going to have a higher pass-through compared, for example, with Vueling.” Recovering €1.2bn would add an estimated 8% to BA’s fares, based on its 2025 revenues. Gallego emphasized that the group is “actively managing the uncertainty created by the fuel price increase and its impact, taking the necessary action on yields, costs and capacity.”
However, he acknowledged: “The impact of the higher fuel price will inevitably lead to lower profit this year than we originally anticipated.” Before Friday’s warning, analysts had forecast IAG would make about €5.2bn in operating profits this year, higher than last year’s record €5bn.
Fuel Availability and Summer Schedules
Speaking as IAG reported first-quarter trading, Gallego said the group was not experiencing fuel scarcity in its main markets and was confident about availability through the peak summer period. He added: “Asia was a concern but is now building up reserves – so we expect to fly everything we have in the schedule for the summer.”
Fears over fuel shortages have been compounded by airlines in the UK successfully lobbying for the ability to cancel more flights without risking valuable airport slots. British Airways CEO Sean Doyle said his airline’s focus was to “fully, effectively redeploy capacity from markets where people aren’t travelling to, such as the Middle East, into markets where people want to travel to.”
Resilience and Investment
Doyle said BA had an “advantageous resilience” if fuel shortages did affect the industry, with its own inventory and supplies. Nicholas Cadbury, IAG’s chief financial officer, said BA believed it was in a better position than the rest of the market after making “significant investments in the UK and BA in depots and fleet,” including direct supplies from ports and refineries.
Industry-Wide Impact
International agencies have predicted that Europe faces shortages of jet fuel if the war in the Middle East continues. Analysts at Goldman Sachs said in a research note on Monday that the UK was the most exposed as the largest net importer of jet fuel in Europe. IAG stated: “If the current conflict continues to restrict flows of both crude oil and jet fuel from the Middle East, there is the potential for supplies of jet fuel to be restricted on a global basis.”
About 2 million airline seats have been cut from this month’s schedules across the industry, according to data from Cirium. While only a net 111 flights have disappeared from schedules at London Heathrow, BA’s main base, fears persist that shortages of jet fuel could cause further summer cancellations. UK airlines were told at the weekend they could have more flexibility to consolidate flights on popular routes if needed.
Financial Performance
IAG reported a pre-tax profit of €422m during the three months to the end of March, up 77% on the same period a year earlier. Revenue rose 1.9% to €7.2bn. The group said it had experienced “strong demand across most of our markets” but “softer demand” in the eastern Mediterranean.
