International Airlines Group, the parent company of British Airways, Iberia and Aer Lingus, has just staged one of the sharpest rallies in Europe’s travel sector, with its shares soaring around 15 percent in recent sessions on the back of stronger earnings, upbeat forecasts and a renewed wave of demand for travel to Spain and France. The jump in market value is rippling far beyond the trading floors of London and Madrid: it is reinforcing a powerful recovery in Mediterranean tourism, lifting hotel performance, and sharpening competition across Europe’s skies as airlines and hospitality groups race to capture high‑spending leisure travelers.
IAG’s 15% Surge: Profits, Balance Sheet And A Bullish Outlook
The latest leg higher in IAG’s share price comes after a series of earnings updates and analyst upgrades that have transformed sentiment toward the group. Investors have been steadily rewarding IAG for posting record operating profits for 2024, expanding margins and shrinking net debt, but the recent rally crystalised once analysts began guiding for further revenue and earnings growth through 2026 and lifted price targets accordingly. Forecasts now point to mid‑single‑digit annual revenue growth and earnings per share increases of around 7 percent, alongside a return on equity expected to exceed 30 percent within three years.
That improving financial profile has been underpinned by a cleaner balance sheet. Net debt has been cut to well under one times earnings before interest, tax, depreciation and amortisation, a marked improvement from the highly leveraged position IAG carried during the pandemic recovery. The company has combined that deleveraging with shareholder‑friendly moves, including a multibillion‑euro share buyback and the restoration of cash dividends for the first time since Covid‑19. For equity markets that had long treated airline stocks with caution, the combination of strong cash generation, lower risk and visible capital returns has been a powerful catalyst.
Crucially, the share price surge is not being driven by cost cutting alone. IAG’s core brands continue to benefit from robust demand on key long‑haul routes, particularly across the North Atlantic, as well as resilient premium leisure traffic on flights linking northern Europe with Southern European holiday destinations. While corporate travel is still expected to remain below pre‑pandemic volumes, the mix has shifted toward higher‑yield leisure and so‑called “bleisure” trips, helping support yields even as capacity rises.
Spain And France: The Twin Engines Of Mediterranean Demand
Behind the numbers lies a powerful macro story: the resurgence and now normalisation of tourism in Spain and France. Spain’s travel and tourism sector is on track to reach or surpass record levels of economic contribution, with industry estimates suggesting the sector could account for close to 16 percent of national GDP by 2025 and continue growing at a healthy pace into 2026. International arrivals have already pushed well past pre‑Covid benchmarks, while spending by foreign visitors has set new highs. France, the world’s most visited country by arrivals, has seen a similar pattern, combining mass‑market tourism with a rebound in high‑end city breaks and wine and gastronomy travel.
For IAG, these two markets are central. Spain is not only one of its largest destinations; it is also where the group is legally based and where Iberia and low‑cost carrier Vueling anchor extensive short‑ and medium‑haul networks. France remains a crucial source market as well as a key destination, feeding British Airways’ London hubs and Iberia’s Madrid operations with high‑value travelers. Recent data show Spain welcoming close to 100 million international tourists annually, with strong growth in winter travel and a more even spread of demand beyond the peak summer months, while France continues to consolidate its position at the top of the global arrivals ranking.
This deep and enduring demand gives IAG confidence to keep capacity near or slightly above pre‑pandemic levels across its Spanish and French networks. The group has been adding frequencies on city‑pair routes such as London–Madrid, London–Barcelona, Dublin–Madrid and connections from secondary French cities into its hubs. That build‑up is now being rewarded with strong load factors and rising unit revenues, reinforcing investors’ conviction that the Mediterranean travel boom is no short‑lived rebound but the basis for a multi‑year expansion.
How IAG’s Strategy Is Channeling Tourists To Iberia, Vueling And British Airways
The rally in IAG’s share price also reflects investor approval of how the group has positioned its airline brands within this broader tourism upswing. British Airways has refocused on its strengths on the North Atlantic and premium long‑haul, while Iberia has sharpened its role as a bridge between Europe and Latin America and as a key carrier for inbound tourism to Spain. Vueling has been tasked with defending and growing IAG’s share of intra‑European leisure routes, including vital links between northern Europe and Mediterranean coastal and island destinations.
Network planning has deliberately channeled more connecting traffic through Madrid and Barcelona for Spain‑bound itineraries and through London for passengers heading to France or traveling onward to long‑haul routes. IAG has also leaned into its Avios loyalty platform, using points promotions and bundled hotel and flight offers to nudge travelers toward group‑operated flights and preferred partner hotels. The success of such cross‑selling campaigns has been evident in rising loyalty programme profits and higher engagement, which in turn give the group more pricing power and resilience when economic conditions soften.
At the same time, IAG has been careful not to flood the market with capacity. Aircraft delivery delays and supply chain constraints have imposed natural discipline, but the group has gone further by keeping overall capacity growth in the low single digits. Analysts note that this reflects a deliberate strategy to maintain a tight balance between seats and demand on key holiday routes into Spain and France, supporting yields and ensuring that hotels and destinations are dealing with healthy, rather than overwhelming, visitor flows.
Spanish Hotels Ride Record Occupancy And Strong Winter Travel
Nowhere are the benefits of IAG’s momentum more visible than in Spain’s hotel sector. After an initial post‑pandemic surge, 2025 became the year when performance consolidated at very high levels. Hotel overnight stays across the country have been running around 6 percent above pre‑Covid norms, with occupancy close to 70 percent over the year and peaking well into the high 70s in summer. Crucially for operators, recent data confirm that demand is no longer confined to July and August. The sustained growth of international arrivals in shoulder and winter months, including a strong December performance, has allowed hotels to secure steadier revenue streams across the calendar.
The steady flow of inbound passengers on IAG airlines is one factor in this equation. Routes from the United Kingdom, Ireland and northern Europe into Madrid, Barcelona, the Balearic and Canary Islands and the Costa del Sol have benefited from increased frequencies and better connectivity. Combined with aggressive destination marketing and the enduring appeal of Spain’s climate, culture and food, the airline capacity has underpinned robust city‑break and sun‑and‑sea demand. Hotels in Madrid have emerged as standout beneficiaries, with the capital now capturing just over a fifth of Spain’s international air arrivals and setting the tone for higher‑end urban hospitality.
Hotel profitability has improved in tandem. Revenue per available room has grown faster than inflation, reflecting not only strong occupancy but also the ability to price rooms higher, particularly in four‑ and five‑star properties that cater to international visitors. Many Spanish chains have used the upswing to accelerate refurbishments, upgrade technology and expand into secondary cities and rural destinations that are seeing faster growth from domestic and foreign tourists alike. The result is a virtuous circle in which better air access feeds hotel demand, which in turn incentivises further investment and higher service standards.
French City Hotels And Resorts Benefit From Premium Leisure And Events
In France, the knock‑on effects of IAG’s strong performance are most visible in major gateway cities and key resort areas. Paris remains a magnet for premium leisure and business‑events travel, and British Airways and Iberia routes into the French capital have seen sustained high load factors. Travelers from North America and Asia are increasingly opting to combine city stays in Paris with trips to Spain, Portugal or Italy, a pattern that benefits IAG’s multi‑hub structure and delivers additional nights for French hotels at the start or end of multi‑country itineraries.
French hotels have also capitalised on solid demand from British and Irish travelers flying on IAG carriers for long weekends and cultural trips. High‑speed rail remains a powerful competitor on some corridors, but airlines have carved out a stronger role on longer‑haul European routes and on connections that link French cities with IAG’s long‑haul network via London or Madrid. This has been particularly helpful for hotels in cities such as Nice, Bordeaux and Lyon, where improved connectivity has coincided with upgraded boutique and luxury properties aimed at international guests.
Looking ahead, major events and the continued draw of French gastronomy, wine and heritage tourism suggest that hotel operators will remain closely aligned with airline capacity plans. The fact that IAG is forecasting further, albeit moderate, capacity growth on intra‑European and long‑haul segments that touch France gives hoteliers more confidence to plan staffing, renovation programmes and rate strategies for 2026 and beyond.
Secondary Destinations And Year‑Round Tourism Gain Ground
One of the more intriguing trends emerging from the current cycle is the rise of secondary and lesser‑known destinations within Spain and, to a lesser extent, France. Data from Spain indicate double‑digit growth in international arrivals in regions such as the Comunidad Valenciana, as well as strong momentum in rural and inland areas. For IAG, which can flex capacity using a mix of mainline and low‑cost brands, this creates opportunities to open or reinforce routes to airports that were previously considered peripheral but now serve as gateways to up‑and‑coming destinations.
The implications for hotels are significant. Where once investment was heavily concentrated on iconic coastal resorts and major cities, operators are now looking deeper into the map. Smaller cities and towns that benefit from improved air links and destination marketing are seeing new mid‑scale and upper‑mid‑scale properties, often with a strong focus on local experiences and sustainability. Year‑round connectivity, supported by airlines planning stable winter schedules and not just summer peaks, helps these hotels avoid the severe seasonality that has long challenged parts of the Mediterranean.
France is experiencing a parallel, if more gradual, shift, as regions beyond Paris and the Côte d’Azur actively court international visitors. Here, too, airline strategy matters. As IAG and other carriers maintain or increase capacity into regional airports, it becomes more commercially viable for hotel operators to upgrade existing stock or develop new sites. The result is a more diversified tourism landscape that spreads the economic benefits of travel more widely, while also reducing pressure on the most saturated hotspots.
Risks On The Horizon: Costs, Competition And Capacity Discipline
Despite the upbeat mood reflected in IAG’s share price and the strong performance of Spanish and French hotels, risks remain that could temper the current boom. The airline industry is inherently cyclical, vulnerable to swings in fuel prices, economic slowdowns, labour disputes and geopolitical shocks that can abruptly alter travel patterns. Analysts have been quick to point out that some of the drivers behind IAG’s current profitability, such as relatively benign fuel costs and constrained aircraft supply, may not last indefinitely.
For hotels, the challenge is to maintain pricing power and service quality in the face of rising operating costs, including wages and energy, while avoiding over‑reliance on a handful of key source markets. A downturn in consumer confidence in northern Europe, for example, could quickly feed through into softer bookings on IAG flights and lower occupancy in coastal resorts and city hotels. At the same time, the growth of alternative accommodation platforms keeps competitive pressure high, especially in urban centres where regulation is still catching up.
Nevertheless, both airlines and hotels appear to have learned lessons from the volatile years following the pandemic. Capacity growth is more measured, investments are more targeted, and there is a stronger emphasis on profitability rather than pure volume. As long as IAG and its peers maintain discipline on seat supply and continue to coordinate with destinations and hotel partners, the risk of a damaging overshoot in capacity appears lower than in past cycles.
Why The Rally Matters For Travelers, Investors And Destinations
IAG’s 15 percent share price surge is more than a stock market story. For travelers, it signals that Europe’s major airline groups are entering a phase of relative financial stability that should, over time, translate into more reliable operations, fresher cabins and a broader choice of routes linking key markets with Spain, France and other Mediterranean destinations. For investors, the combination of rising earnings, lower leverage and resumed dividends is reshaping perceptions of airline equities, at least for those carriers that have used the recovery years to strengthen their balance sheets and refine their strategies.
For destinations and the hotel sector, the rally underscores the central role of air connectivity in sustaining tourism‑led growth. Spain and France are reaping the rewards of being deeply integrated into IAG’s network at a moment when global demand for travel remains robust and travellers are willing to spend more on premium experiences. As long as that equation holds, the partnership between airlines, hotels and destinations will remain one of the most powerful engines of economic activity across Southern Europe.