International Airlines Group, the Madrid based parent of British Airways and Iberia, has spent the past year riding a roller coaster on European stock markets. Its share price has surged on the back of strong quarterly results and generous shareholder returns, only to stumble when investors refocus on softer transatlantic demand and the ever present threat of higher fuel costs. As global oil prices swing on geopolitical shocks, OPEC+ decisions and Middle East tensions, IAG’s story has become a case study in how a legacy airline group is trying to steady its course through one of the most volatile fuel and demand environments since the pandemic.

From market darling to whipsaw trading in a single quarter

Investor sentiment around IAG has oscillated sharply since late 2024, mirroring the push and pull between resilient travel demand and fragile macroeconomics. Strong third quarter results for both 2024 and 2025 showed the group firmly back in profit, with operating margins above pre pandemic levels and net profit outpacing major European rivals. That helped turn IAG into a relative bright spot in a sector still grappling with high costs, air traffic control bottlenecks and capacity constraints.

Yet the equity market reaction has often been brutally binary. In November 2025, the group reported a 15.5 percent rise in net profit for the first nine months of the year, reaching around 2.7 billion euros. Iberia delivered a record summer, British Airways continued to benefit from premium long haul demand and the group reaffirmed its guidance. Despite that, the shares suffered a double digit one day drop, their steepest fall in roughly four years, after investors took fright at signals of cooling North Atlantic demand and a shareholder payout deemed less generous than hoped.

More recently, the publication of third quarter 2025 figures has told a similar story of solid but nuanced progress. Operating profit edged higher year on year to just over 2 billion euros, and operating margin reached about 22 percent. Passenger revenue rose at constant currency, non fuel unit costs barely ticked up and the group reiterated that it is on track for another year of revenue, profit and margin growth. Even so, a modest miss versus some analyst profit forecasts and further evidence of softer U.S. point of sale economy travel on transatlantic routes sparked another sharp sell off in the days following the announcement.

Oil price shocks keep fuel at the heart of the IAG narrative

The backdrop to these market swings has been a highly unsettled energy market that has kept airline fuel bills firmly in the spotlight. While crude oil spent much of 2025 retreating from earlier peaks, geopolitical jolts have repeatedly reminded investors how exposed aviation remains. Tensions in the Middle East and supply disruptions have periodically pushed benchmark prices higher within days, dragging jet fuel markets with them and prompting sudden bouts of sector wide profit taking.

IAG, for its part, has worked to blunt that volatility through a disciplined fuel hedging and fleet renewal strategy. For 2025 it expects a full year fuel bill of around 7.1 billion euros, a figure that already bakes in forward prices and currency assumptions set at the end of the third quarter. Management has hedged roughly three quarters of its remaining 2025 fuel exposure, gradually stepping that coverage down through 2026 and into early 2027 as contracts roll off. That layered approach aims to protect the balance sheet from the most violent swings in oil markets while still allowing the group to benefit if prices drift lower.

Even with hedging, fuel remains the single biggest cost line on IAG’s income statement and a central driver of investor perception. In its most recent earnings updates, the group highlighted that fuel unit costs actually declined in the third quarter of 2025, helped by both lower underlying commodity prices year on year and the growing impact of new generation aircraft with better fuel burn. The jet fuel curve, however, has stayed choppy. When oil spiked in mid 2025 following renewed tensions around the Gulf, airline stocks across Europe sold off sharply in anticipation of higher future fuel expenses, regardless of their current hedges.

Hedging, efficiency and fleet renewal: IAG’s fuel playbook

Under the surface of headline fuel bills, IAG has been executing a longer term plan designed to wean the group away from the worst of oil price volatility. New Airbus A350s and Boeing 787s for Iberia and British Airways, the ongoing introduction of A320neo family jets at Iberia and Vueling, and cabin retrofits across the network are all intended to lift fuel efficiency per seat. Each wave of deliveries nudges down unit fuel consumption, giving the group a structural cushion when markets tighten.

On top of that, the fuel hedging book is carefully staged. For the remainder of 2025 the group has locked in the majority of its expected jet fuel needs, with hedge ratios gradually falling through 2026 and 2027. That time spread aims to avoid the trap of over hedging at the wrong point in the cycle while still ensuring that sudden rises in crude do not immediately translate into an untenable spike in cash costs. Management has repeatedly reaffirmed its expectation that total fuel costs will remain around the guided 7.1 billion euro range for 2025, even as spot markets fluctuate.

Operational initiatives are also playing a role. More direct routings enabled by evolving airspace restrictions, investments in more efficient ground operations and efforts to increase load factors all help squeeze more revenue out of each tonne of fuel burned. In recent quarters, IAG’s fuel unit cost reductions have combined with only marginal increases in non fuel unit costs, resulting in an overall cost base that is far more resilient than at the start of the decade. That has been crucial for keeping margins intact when ticket yields on certain routes have come under pressure.

Transatlantic turbulence and shifting demand patterns

While fuel volatility grabs headlines, demand dynamics on IAG’s key markets have been just as important to the recent share price drama. The North Atlantic, historically one of the group’s most profitable arenas through British Airways and Iberia’s Madrid hub, has cooled at the economy end of the cabin. Management has flagged weaker leisure demand from the U.S. point of sale and a noticeable drop in load factor on North Atlantic routes, even as premium and long haul segments to Latin America and Asia Pacific have held up.

That shift has forced IAG to tweak its capacity plans. Available seat kilometres across the group are still growing, but more conservatively than once expected, with some less profitable or highly competitive routes trimmed back. Analysts note that this pruning, combined with tight control of non fuel costs, has so far limited the damage to margins. Nonetheless, markets have reacted nervously whenever the company has highlighted transatlantic softness, especially given that the North Atlantic remains a bellwether for broader corporate and high yield travel spending.

The situation is further complicated by currency swings and geopolitical uncertainty. A volatile pound, debates over taxation on air travel and periodic disruptions such as reduced flying to Tel Aviv and other destinations have all weighed on yields in pockets of the network. In response, IAG has leaned on the diversity of its portfolio, with Iberia and Vueling catering to robust demand in Spain and Latin America, and Aer Lingus continuing to leverage Ireland’s position as a transatlantic gateway. That breadth has been a key factor behind the group’s ability to maintain a strong guidance, even as one region underperforms.

Share buybacks, dividends and the tug of war over capital

One of the most striking elements of IAG’s recent strategy has been the speed at which it has pivoted from survival mode to shareholder reward. After years of pandemic losses, the group has reinstated dividends, launched a 1 billion euro share buyback programme and repeatedly signalled its intention to return further cash as its balance sheet strengthens. Adjusted earnings per share jumped in the first nine months of 2025, helped both by higher profits and the reduced share count from completed buybacks.

Those actions have not always delivered the investor reaction management might have hoped for. When IAG announced improved profits and additional shareholder remuneration in the autumn of 2025, the market still punished the stock, focusing more on the perceived caution in the size of the dividend uplift and the hints of slowing growth on the North Atlantic. It was a reminder that, in a cyclical industry like aviation, investors will often prioritise visibility on future earnings over near term cash returns, particularly when fuel and macro conditions are so uncertain.

Even so, the commitment to disciplined capital allocation remains central to IAG’s pitch. The group is targeting net leverage below roughly 1.8 times through the cycle, a proxy for investment grade strength, and has been steadily paying down debt while keeping a significant portion of incoming aircraft deliveries unencumbered. Management insists that any future increases in buybacks or dividends will be balanced against the need for continued fleet investment, digital upgrades and the flexibility to pursue strategic opportunities such as potential acquisitions.

British Airways and Iberia at the core of IAG’s resilience

Within the broader IAG portfolio, British Airways and Iberia are carrying much of the load in the battle against volatility. British Airways has benefited from its powerful position at London Heathrow, where constrained capacity has helped support yields on long haul routes to the United States, Middle East and Asia. Premium cabins remain a crucial profit engine, with the carrier investing heavily in new business class products and upgraded lounges to attract high spending corporate and leisure travellers.

Iberia, meanwhile, has emerged as one of the standout performers in the group. A record summer in 2025 underscored the strength of Madrid as a hub for Latin America, where demand has remained robust despite pockets of economic weakness in certain countries. Iberia’s leaner cost base relative to British Airways, combined with a modern, fuel efficient fleet, has made it a key contributor to IAG’s margin expansion. The airline’s growth on transatlantic routes to South and Central America has offset some of the softness on the core North Atlantic corridor.

Both carriers are central to IAG’s strategy of consolidating leadership in its priority markets: the North Atlantic, Latin America and intra European flying. As oil prices swing, their scale and brand power give the group pricing flexibility that many low cost rivals lack. At the same time, they face mounting pressure to decarbonise, modernise and maintain punctuality, all under the scrutiny of regulators and consumers who are increasingly sensitive to environmental and service quality issues.

What oil and markets mean for future fares and routes

For travellers watching IAG’s share price flicker alongside headlines about oil, the most immediate question is how this will translate into ticket prices and route choices over the next few seasons. In the near term, the group’s robust hedging position and healthy margins give it room to absorb moderate shifts in fuel costs without passing them on directly to passengers. Promotional fares and sharply discounted off peak seats are likely to remain available on many European and leisure routes, particularly where competition from low cost carriers is intense.

However, if oil were to trend significantly higher for a sustained period, the pressure would eventually reach the fare structure. Long haul flights, which burn large amounts of fuel, are particularly sensitive. Travellers could see higher average prices on popular North Atlantic and Latin American routes, new ancillary charges or more dynamic pricing that more closely tracks changes in demand and costs. At the same time, IAG might further refine its network, trimming marginal routes and redeploying capacity towards markets where demand and yields are strongest.

The flip side is that periods of oil price relief can quickly feed through into better capacity and pricing options for consumers. When crude and jet fuel eased earlier in 2025, European airline stocks, including IAG, rallied as markets anticipated some cost relief and more flexibility on fares. For passengers, that environment typically brings more route launches, additional frequencies and competitive pricing as carriers jostle for market share. The challenge for IAG is to plan its network several seasons ahead while fuel curves and demand patterns shift from one month to the next.

As 2026 begins, IAG finds itself in a paradoxical position. Financially, it is stronger than at any point since before the pandemic, with net leverage down, profits up and all of its main airlines operating in the black. Its fuel risk is partially insulated by hedges and a more efficient fleet, and demand for travel remains broadly resilient despite pockets of weakness. Yet its stock remains highly sensitive to any hint of softer bookings, rising fuel or global instability.

For British Airways and Iberia, the path forward will involve doubling down on the fundamentals that have carried them through the past few turbulent years: disciplined capacity growth, relentless cost control, and continued investment in customer experience. If they can maintain high load factors, grow premium revenue and steadily improve fuel efficiency per seat, they will be better equipped to weather the next oil spike or economic shock.

For investors and travellers alike, IAG’s journey over the coming quarters will offer a revealing window into how major airline groups adapt to a world where volatility is the norm rather than the exception. Oil prices will continue to rise and fall, geopolitical risks will ebb and flow, and demand patterns will shift. The question is whether Spain’s iconic duo of British Airways and Iberia, under the IAG umbrella, can keep turning that turbulence into sustainable long term momentum rather than another sharp jolt in an already bumpy ride.