Shares in International Consolidated Airlines Group SA (IAG) tumbled on Monday, leading a broad decline across European airline stocks, as a sharp spike in oil prices and persistent flight disruptions in the Middle East applied renewed pressure on the sector's fragile recovery. IAG, the parent company of British Airways and Iberia, saw its stock fall as much as 6% in morning trading.
Market-Wide Pressure
The selloff was not isolated to IAG. Major carriers Air France-KLM, Lufthansa, and budget airline Wizz Air also registered significant losses, with declines ranging from 2.5% to 6%. The downturn coincided with a powerful rally in Brent crude oil, the global benchmark, which briefly climbed to its highest level since 2022, approaching $120 per barrel, before paring some gains. The surge in energy costs presents a direct threat to airline profitability, with fuel consistently ranking as one of the industry's largest operational expenses.
Operational Headwinds Mount
Beyond fuel, operational disruptions are creating significant headwinds. Data from aviation analytics firm Cirium reveals that more than 40,000 flights to and from the Middle East have been canceled since February 28, 2026, due to escalating regional tensions. British Airways confirmed in a March 6 update that it remains unable to operate flights to several key destinations, including Abu Dhabi, Amman, Bahrain, Doha, Dubai, and Tel Aviv. To partially offset this, the carrier has added extra Muscat-to-Heathrow services scheduled from March 9 through March 12. Another IAG subsidiary, Iberia Express, has extended cancellations for Tel Aviv through at least March 10.
The dual challenge of soaring input costs and restricted airspace is dampening the optimistic momentum IAG had recently built. Just last week, the group reported full-year 2025 operating profit, excluding exceptional items, of 5.02 billion euros, surpassing analyst forecasts. CEO Luis Gallego had pointed to a robust rebound since the third quarter and highlighted strong forward bookings for the first quarter. The company also initiated a 500 million euro share buyback, the first tranche of a planned 1.5 billion euro capital return to shareholders announced on February 27.
Analyst Concerns Over Margins and Demand
Financial analysts have quickly tempered expectations in light of the new pressures. Tom Fitzgerald of TD Cowen noted it is "hard to envision margin expansion" for airlines this year unless energy prices retreat sharply. Nicolas Owens, an analyst at Morningstar, added that the March fuel price spike would directly weigh on airline profitability. Lorraine Tan, also of Morningstar, warned that sustained high fares could eventually "curtail travel demand," particularly in the leisure segment.
IAG does maintain some financial insulation through hedging strategies. The company hedges both fuel and currency requirements on a rolling three-year schedule, with up to 75% of its near-term exposure covered. However, its hedging for 2025 is reportedly about 9% lower than the previous year. This strategy provides a buffer against short-term price volatility but offers limited protection if elevated oil prices and closed airspace become prolonged issues.
Broader Sector Impact
The pressures are sector-wide. Rival carrier Wizz Air recently flagged an estimated $58 million profit impact tied to the ongoing conflict. Both Air France-KLM and Lufthansa have also suspended numerous routes in the affected region. The broader European travel and leisure stock index slid alongside airline shares, as investors weighed the potential for extended conflict to drive up global transport costs and reignite inflationary pressures.
The immediate market focus now shifts to the duration of both the geopolitical conflict and the associated risks to critical shipping lanes like the Strait of Hormuz. If the situation persists, IAG and its peers face a prolonged period of elevated fuel expenses and complex, costly flight path rerouting, posing a significant threat to the hard-won recovery trajectory established in recent quarters.
