Leading share of the busiest long-haul routes
Strong positions between Europe, North America and Latin America underpin the group's most profitable flying.
International Consolidated Airlines Group (IAG): Five Airlines, Two Hubs, One Loyalty Machine
IAG owns British Airways, Iberia, Aer Lingus, Vueling and LEVEL, and also runs the Avios points scheme that turns credit-card spending into airline cash.
LSE:IAG
$427.60+0.59%
Updated: Aug 12, 2026
BLT (Business Services, Leisure, Travel)
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Bull & Bear Case
An overview of the main reasons to invest and the key risks involved.
Bull Case
Avios loyalty business earns cash without aircraft
Selling points to banks and retailers produces high-margin profit that needs very little capital.
Cost and systems overhaul lifts margins
A multi-year transformation programme targets operating margins of 12% to 15% through the cycle.
Bear Case
Fuel and conflict can hit profits fast
Oil spikes and closed airspace cut into earnings faster than fares can be raised.
Aircraft and engine delays cap growth
Manufacturer and engine problems ground aircraft and stop planned capacity arriving on time.
Tax ruling threatens the Avios model
UK tax authorities want VAT charged when Avios are issued, which would raise loyalty costs.
Executive Summary
About IAG
IAG is the parent company of British Airways, Iberia, Aer Lingus, Vueling and LEVEL, flying around 120 million passengers a year to some 285 destinations from hubs in London, Madrid, Barcelona and Dublin. Most revenue comes from selling seats, with the rest from cargo, aircraft maintenance for other airlines, holidays and the Avios loyalty currency it sells to banks and retailers.
The case rests on strong positions across the Atlantic and within Europe, plus a loyalty arm that earns high margins without buying aircraft. Management targets operating margins of 12% to 15% through the cycle and returns spare cash to shareholders. The debate is whether fuel prices, geopolitics and aircraft delivery delays make those margins repeatable.
The case rests on strong positions across the Atlantic and within Europe, plus a loyalty arm that earns high margins without buying aircraft. Management targets operating margins of 12% to 15% through the cycle and returns spare cash to shareholders. The debate is whether fuel prices, geopolitics and aircraft delivery delays make those margins repeatable.
Investment Thesis
Overview of buy and sell case of the business.
Why Invest?
Key pieces of information about the business that you need to know about.
Leading share of the busiest long-haul routes
IAG and its partner airlines carry roughly a third of all traffic between Europe and North America, the single largest long-haul market from Europe, with particular strength out of London. Iberia gives it the leading European network into Latin America through Madrid. These routes carry the most business and premium travellers, who pay far more per seat than holiday passengers, and slots at congested hub airports are extremely hard for a rival to assemble from scratch.
Avios loyalty business earns cash without aircraft
IAG Loyalty sells Avios, the points customers collect, to banks, credit-card issuers and retailers, who hand them to their own customers as rewards. Because IAG is paid upfront and only incurs a cost when points are spent, the business generates profit and cash without buying aircraft. Long-term contracts with American Express and JPMorgan Chase have both been renewed, and management is targeting €1 billion of annual operating profit here in the medium term.
Cost and systems overhaul lifts margins
A group-wide transformation programme is rebuilding commercial and operating systems airline by airline: new booking platforms and revenue management at British Airways, a voluntary early-retirement scheme and long-haul fleet growth at Iberia, a cheaper Boeing fleet at Vueling, and route and cost cuts at Aer Lingus. The stated aim is an operating margin of 12% to 15% through the cycle, a level well above most large European and US airlines, alongside strong cash generation.
Catalysts
The key events that could drive investment opportunities and shift markets.
Avios Tax Hearing: The next stretch is dominated by cost recovery, fleet transition and a tax case that decides how the loyalty business is charged. A UK tribunal hears IAG's challenge to HMRC's demand for VAT on Avios issuance, with a decision expected the following year and around €512 million already paid over and treated as recoverable.
Buyback Completion: A €1.5 billion return of excess cash announced in February 2026 is being executed in tranches through to February 2027, shrinking the share count as buybacks complete and shares are cancelled.
Vueling Boeing Switch: Vueling begins swapping its Airbus fleet for Boeing 737s from the end of 2026, part of a plan the airline says will lower ownership and operating costs and support a long-term goal of 60 million passengers a year.
Starlink Rollout: High-speed satellite Wi-Fi from Starlink is being fitted across Aer Lingus, British Airways and Iberia aircraft, with roughly half the long-haul fleet targeted by the end of 2026 and free access offered to customers.
Iberia Flight Plan 2030: Iberia's strategic plan targets €1.4 billion of operating profit, supported by growing its long-haul fleet towards 70 aircraft by the mid-2030s and building Madrid into the main European gateway to Latin America.
New Long-Haul Aircraft: Orders and options covering hundreds of aircraft, including Airbus A350s, A330-900s and Boeing 787-10s and 777-9s, deliver from 2028 to 2033, replacing older jets that burn substantially more fuel per seat.
Key Risks
Key pieces of information about the business risks that you need to know about.
Fuel and conflict can hit profits fast
Jet fuel is one of the largest costs and its price moves with oil markets and politics. Conflict in the Middle East pushed fuel prices sharply higher and forced the suspension of routes to Gulf states, Israel and Jordan, roughly 3% of group capacity. Hedging softens the blow but only delays it, and management expects to recover only around 60% of a fuel increase through fares and cost savings.
Aircraft and engine delays cap growth
IAG depends on Airbus, Boeing and engine makers, and all have run late. Engine availability problems have grounded aircraft and forced capacity plans to be cut, with planned growth of about 2.5% turning into a flat year. Fewer aircraft means fewer seats to sell against a largely fixed cost base, and airport expansion at Heathrow and the Dublin passenger cap add further limits outside the company's control.
Tax ruling threatens the Avios model
UK tax authorities argue that 20% VAT is due when Avios points are issued, rather than depending on what they are eventually spent on, which for flights is mostly tax-free. IAG disputes this and has paid over €512 million to advance its appeal, treating it as recoverable. An adverse ruling would raise the ongoing cost of the loyalty business, the group's highest-margin activity.
Follow the Experts
Quickly navigate key insights from industry experts and leverage their knowledge and market intelligence.
Alex Irving
European airline equity research
Institutional investors via Bernstein research and broker Bernstein SocGen Group and is quoted in the financial press.Bernstein's European transport analyst, and the most consistently bullish major-broker voice on IAG. audience
Andrew Lobbenberg
European airline equity research
Barclays institutional clients audience
Gerald Khoo
UK transport and airline equity research
Richard Hunter
UK retail market commentary
Julie Palmer
Corporate restructuring and consumer-sector risk
Team
Meet the experienced professionals leading our organization
Javier Ferrán
Luis Gallego
What the Pros are asking
Here are the questions that professional investors are asking before making an investment decision.
How does an airline group actually make money beyond selling tickets?
Selling seats is the bulk of it, but IAG has several other income lines. IAG Cargo fills the hold of passenger aircraft with freight. Iberia runs a maintenance business that services engines and airframes for other airlines, and has been awarded one of only eight global licences to overhaul the LEAP engine. IAG Loyalty sells Avios points to banks and retailers, and British Airways Holidays packages flights with hotels. Together these diversify earnings away from pure ticket sales.
What exactly is Avios and why do investors care so much about it?
Avios is the points currency customers collect and spend on flights, upgrades and products. IAG sells those points in bulk to partners such as American Express and JPMorgan Chase, who give them to cardholders as rewards. IAG receives cash upfront and only bears a cost later when points are redeemed. Because it needs almost no aircraft or airports, the business earns high margins on the capital invested, which is why management is building it towards €1 billion of annual operating profit.
Are airlines not just a terrible, cyclical business to own?
Airlines are genuinely cyclical, and IAG says so itself by targeting a margin range rather than a single number. What differentiates this group is the mix: premium and business travel across the Atlantic, hub airports where slots are scarce, a low-cost arm in Vueling, and the loyalty business that earns money whether or not a given route is full. The company keeps borrowings low relative to earnings and holds investment-grade credit ratings, which matters most when a downturn arrives.
Why does the group have so many separate airline brands instead of one?
Each brand serves a different customer and hub, and IAG runs them as separate businesses with their own management and profit responsibility. British Airways is the full-service carrier at London Heathrow, Iberia the Madrid hub airline focused on Latin America, Aer Lingus the transatlantic operator from Dublin, Vueling a low-cost point-to-point carrier in Spain, and LEVEL a long-haul low-cost airline from Barcelona. The parent company sets strategy, allocates capital between them and shares expertise.
How does the shift to greener flying affect what IAG earns?
It adds cost. Sustainable aviation fuel, made from waste and other non-fossil sources, is far more expensive than ordinary jet fuel, yet EU and UK rules now require airlines to blend in a rising share. Airlines must also buy carbon permits, and free allowances in the EU and UK have been withdrawn. IAG argues European carriers are disadvantaged against global rivals facing lighter rules, and lobbies for incentives. Newer, more fuel-efficient aircraft cut both fuel bills and emissions at the same time.