British Airways owner IAG expects lower capacity in 2026 as fuel costs bite

Nov 6 (Reuters) - British Airways owner IAG ICAG.L on Friday forecast its annual capacity would be slightly lower this year, the first decline since 2022, as flight disruptions in the Middle East stemming from the Iran war and other regional conflicts weighed on operations.

The airline operator, whose other brands include Aer Lingus and Iberia, reported third-quarter operating profit before exceptional items of €1.73 billion ($1.94 billion), missing analysts' consensus of €1.81 billion, as the global aviation sector struggles with rising fuel costs stemming from the war.

IAG shares, which have largely recovered since a sharp fall when the Iran war began, fell 1% on opening on Friday before turning 1% higher.

With little sign of an end to the war, many airlines are ​re-evaluating their hedging strategies and tightening cost controls, with many cutting capacity.

Europe's big carriers, including Air France-KLM AIRF.PA and Lufthansa LHAG.DE, proved to be more resilient in the third quarter than budget players like Ryanair RYA.I as they capitalise on ambitious investments into premium products that target wealthier consumers to recoup higher costs associated with fuel.

"For the quarter we have achieved an operating margin before exceptional items of 17.7%, despite the very high price of jet fuel and a number of one-off disruption events, clearly demonstrating the quality of our business," IAG Chief Executive Luis Gallego said in a statement.

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However, IAG said 85% of expected seats available for the fourth quarter have been booked, with numbers for the first quarter of 2027 looking strong.

It expects its total fuel cost to be €8.9 billion for the year, with IAG currently 45% hedged against volatilities for 2027.

($1 = 0.8930 euros)