INTERNATIONAL AIRLINES GROUP (IAG) SHARES: 2025 PERFORMANCE IN UK, KEY DRIVERS, MILESTONES AND RISKS —'26 OUTLOOK

How did IAG shares perform in 2025?

International Consolidated Airlines Group SA (IAG), the parent company of British Airways, Iberia, Aer Lingus, and Vueling, recorded a dynamic year in 2025. After emerging from a volatile macroeconomic environment in previous years, IAG demonstrated a strong operational recovery driven by a combination of increased travel demand, cost discipline and strategic restructuring.

Throughout 2025, IAG’s share price showed notable volatility, with a general upward trend seen in the second half of the year. Shares began the year around £1.65 and rallied to close at approximately £2.25 by December, representing a year-to-date gain of roughly 36%. This growth was supported by encouraging earnings results, continuing recovery in long-haul and premium travel, and a return to steady profitability for the group’s main airlines.

Full-year financial results for 2025 captured strong demand on North Atlantic and intra-European routes. Revenue surpassed €28 billion, up from €24.3 billion in 2024, marking an 15% year-on-year gain. Passenger numbers rose significantly as corporate travel demand regained momentum and consumers capitalised on pent-up desires for leisure travel.

Operationally, IAG benefited from disciplined cost management and higher yields per seat kilometre (RASK). Notably, British Airways showed consistent recovery in both business and leisure segments, while Iberia capitalised on robust performance in routes to Latin America. Aer Lingus experienced modest gains due to expanded transatlantic flights, and Vueling continued leveraging strong demand in tourist-centric destinations.

Despite encouraging gains, IAG still navigated challenges in 2025, including elevated operational costs due to inflationary pressure, lingering supply chain constraints impacting aircraft delivery, and ongoing union negotiations in Spain and the UK. However, these headwinds were outweighed by strong forward booking trends and upgraded profit guidance released in Q3 2025, which bolstered investor confidence.

Moreover, during late 2025, market participants welcomed confirmation of IAG’s resumed dividend policy, with a modest but symbolic reintroduction of a €0.10 per share dividend—its first since suspensions during the COVID pandemic—reflecting management’s confidence in future cash flows and balance sheet strength.

In summary, IAG’s 2025 share performance in the UK marked a return to growth momentum, supported by improving macro-travel trends, operational stabilisation, and better investor sentiment heading into 2026.

What drove IAG’s growth in 2025?

Several key drivers underpinned IAG’s strong performance in 2025, combining structural improvements at group level with cyclical tailwinds linked to travel recovery. Understanding these catalysts provides insight into how the airline group regained investor confidence and market share during the period.

1. Rebound in air travel demand

A major engine of growth was the broad-based recovery in leisure and corporate air travel. After uneven post-Covid rebounds globally, global capacity utilisation improved materially in 2025. International flight bookings rose with reduced travel restrictions and renewed appetite for premium class services. Business travel, once lagging the recovery, revived notably in Q2 and Q3, particularly in transatlantic markets where IAG has substantial exposure through British Airways and Aer Lingus.

2. Operational efficiency gains

IAG’s management made effective strides in optimising operations across its airline brands. Through enhanced fleet utilisation, retirement of outdated aircraft, and standardisation of key services, the group managed to control its cost per available seat kilometre (CASK), mitigating inflationary pressures. Investments into digital check-in experience, automation of ground functions, and sustainable fuels also enhanced customer experience and brand perception.

3. Route optimisation and capacity expansion

IAG allocated capacity strategically across high-margin destinations. Iberia and Vueling expanded operations in Latin America and the Mediterranean, while Aer Lingus benefited from expanded routes to North America supported by US demand. This network agility allowed IAG to shift capacity toward profitable routes, backed by dynamic pricing strategies.

4. Financial discipline

The group’s return to positive free cash flow generation was essential. Net debt declined to €9.5 billion by year-end 2025, down from nearly €11 billion in 2024, enabling enhanced financial flexibility. With the reinstatement of the dividend, investors saw tangible evidence of return on capital. Cost containment decisions—including contract renegotiations and lean staffing policies—helped manage wage inflation and industry labour shortages.

5. Favourable foreign exchange and fuel hedging

IAG reaped benefits from a relatively stable euro and sterling exchange rate, alongside aggressive fuel hedging strategies that protected margins during periods of Brent price volatility. The stability of input costs sustained gross margin enhancements, especially during seasonally strong quarters.

6. Investor sentiment and ESG focus

Market sentiment turned positive mid-year as analysts upgraded the stock. IAG’s commitment to sustainability—including its pledge to reach net-zero emissions by 2050 and increased investment in sustainable aviation fuels (SAFs)—further appealed to ESG-conscious stakeholders. The group’s environmental roadmap garnered support, particularly from institutional investors.

Altogether, these drivers created a strong narrative around strategic recovery, resulting in outperformance of IAG shares compared to traditional airline benchmarks throughout 2025.

What are the key risks for 2026?

While IAG enters 2026 with positive momentum, several risks could cloud its trajectory. Investors considering exposure to IAG shares should monitor these key risks and emerging headwinds, which could impact the group’s earnings, capacity plans, and stock valuation.

1. Potential macroeconomic slowdown

One of the top concerns is a broad economic deceleration across Europe, the UK and key transatlantic markets. Rising interest rates and persistent inflation in 2025 may still dampen consumer spending and discretionary travel budgets in 2026. Slower GDP growth in core markets could lead to stagnating demand—especially for premium class and business travel segments, directly impacting unit revenues.

2. Labour disputes and wage inflation

Industrial action risk remains elevated across several of IAG’s operating subsidiaries. In 2025, British Airways resolved disputes with ground staff and cabin crew, but new pay negotiations are due in early 2026. Wage inflation among pilots, engineers, and airport staff may intensify cost pressures and create potential operational setbacks, including delays or flight cancellations if strikes go ahead.

3. Geopolitical developments

Ongoing geopolitical instability—particularly in Eastern Europe and the Middle East—could impact flight routes, increase insurance costs, or disrupt long-haul operations. In addition, cross-border regulatory pressures linked to carbon emissions and passenger rights legislation in the EU could lead to additional compliance costs for IAG.

4. Jet fuel and forex volatility

Though IAG maintains a well-hedged position in fuel procurement, sharp spikes in Brent crude prices or disruptions in supply chains could squeeze margins. Similarly, unexpected shifts in the GBP/EUR/USD exchange rates have the potential to distort financial performance, especially given the multinational structure of IAG’s operations and revenue sources.

5. Competition and price pressures

European low-cost carriers (LCCs), including Ryanair and Wizz Air, continue to pressure margins on short-haul routes. Furthermore, long-haul competition is heating up with non-European flag carriers increasing transatlantic capacity. These dynamics could compress yields, particularly if demand softens.

6. Regulatory and ESG-related risks

Regulators in the EU and UK are debating stricter climate-related mandates which may require faster transition to greener fleets. While IAG has made commitments toward decarbonisation, accelerated timelines or binding legislation on emission reductions could necessitate capital-intensive upgrades. Failure to meet emissions targets may also hinder investor interest or provoke legal scrutiny.

7. Unexpected pandemic or health-related impacts

Although COVID-19 disruption has faded, the airline industry remains vulnerable to the emergence of new health threats. Any resurgence of restrictions or travel bans would have a disproportionate effect on IAG’s long-haul operations.

Considering these factors, investors should weigh IAG’s improved financial profile against underlying risks ahead of 2026. Staying attuned to traffic volumes, cost trends, and macroeconomic indicators will be vital in assessing the group’s ability to maintain momentum.