British Airways fares will rise as its parent group, International Airlines Group (IAG), seeks to recoup most of a €2bn (£1.7bn) increase in fuel costs this year caused by the Iran war. IAG said its annual fuel bill was now expected to be about €9bn, up from a forecast €7.1bn, with 70% of supply hedged to mitigate the full impact of soaring jet fuel prices.
IAG expects to recover about 60% of the additional fuel costs through 'revenue and cost management actions', primarily via fare increases on British Airways rather than its sister airlines. Luis Gallego, IAG chief executive, said: '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 2025 revenues.
Gallego said the group was 'actively managing the uncertainty created by the fuel price increase and its impact, taking the necessary action on yields, costs and capacity'. However, he warned: 'The impact of the higher fuel price will inevitably lead to lower profit this year than we originally anticipated.' Analysts had forecast operating profits of about €5.2bn, above last year's record €5bn.
Global oil prices have reached $126 a barrel since the conflict began, up from $72 pre-war, and were trading at just above $100 on Friday. About 2m airline seats have been cut from schedules this month, according to Cirium data. While only 111 net flights have been removed at Heathrow, fears persist over summer cancellations due to potential jet fuel shortages.
IAG said it had experienced 'strong demand across most of our markets' but 'softer demand' in the eastern Mediterranean. The company reported a pre-tax profit of €422m for the first quarter, up 77% year-on-year, with revenue rising 1.9% to €7.2bn.
