British Airways' parent company, International Airlines Group (IAG), has warned that its profits will be hit as it expects to spend approximately two billion euros (£1.72 billion) more than planned on fuel this year amid the ongoing Iran oil crisis.
Impact of Rising Fuel Prices
IAG chief executive Luis Gallego stated that the company is 'managing the uncertainty' caused by the fuel price increase by taking necessary action on yields, costs, and capacity. He acknowledged that the higher fuel price will inevitably lead to lower profits this year than originally anticipated but expressed confidence in the business model and strategy.
Iran Crisis and Jet Fuel Supply
Iran continues to exert control over tankers passing through the Strait of Hormuz, leading to a surge in oil prices and concerns over jet fuel shortages. Global figures from aviation analytics company Cirium show that 13,005 flights planned for May were cancelled between April 10 and April 21, equivalent to 1.5% of scheduled flights.
Mr Gallego noted that IAG does not believe there will be any interruption in jet fuel supply for the summer. While acknowledging reduced supply from the Middle East, he highlighted record supply from other regions, such as the United States. IAG has been planning for such situations for years and has invested in its own jet fuel supply at its main hubs. Additionally, markets in Asia that were previously weaker in terms of fuel supplies are now building up reserves.
Demand and Financial Performance
IAG reported strong demand across most markets but softer demand in the eastern Mediterranean. The company recorded a pre-tax profit of 422 million euros (£365 million) for the three months to the end of March, a 76.6% increase from 239 million euros (£207 million) a year earlier.
Mr Gallego attributed the strong first quarter to continued robust demand for the company's networks and airline brands. He emphasized that IAG is uniquely positioned to navigate the current headwinds created by the Middle East conflict due to its leading positions across diverse markets, strong brands, structurally high margins, strong balance sheet, and a track record of execution.
Capacity Adjustments
About 3% of IAG's capacity was exposed to the Gulf region at the start of the war on February 28, mostly through British Airways flights. A large part of this capacity has been redeployed, including boosting services to destinations where Middle East carriers have reduced flights, such as Bangkok, Singapore, and the Maldives. British Airways has also announced additional flights this summer on routes with higher demand for direct flights, including India and Nairobi.
