International Airlines Group CEO Luis Gallego said rising fuel prices will inevitably lead to fare increases during an International Air Transport Association event on June 7 [1].
This shift signals a precarious balance for the aviation industry as it attempts to capitalize on surging travel demand while absorbing volatile operational costs. The ability of airlines to pass these costs to consumers will determine profit stability for the remainder of the year.
Gallego said passenger demand remains strong despite the financial pressure of higher fuel costs [5]. He specifically highlighted growing demand for travel to Asia as a key market trend, alongside ongoing consolidation within the global airline sector [1].
However, the surge in jet-fuel costs has forced the company to adjust its financial expectations. Gallego said the company is cutting its 2026 outlook because costs have surged [3]. He previously said that profit and cash flow are expected to be lower than guided due to these price spikes [2].
To mitigate the impact, IAG has hedged 70% of its fuel needs for 2026 [1]. Despite these protections, the company is facing a fuel cost surge of €2 billion [3]. IAG aims to recover 60% of that amount through fare hikes [3].
"Elevated fuel prices will inevitably lead to fare increases," Gallego said [4].
“"Elevated fuel prices will inevitably lead to fare increases."”
The situation at IAG reflects a broader industry struggle where strong consumer appetite for travel, particularly in Asian markets, is being offset by macroeconomic pressures. By attempting to recover a significant portion of a €2 billion cost increase through ticketing, IAG is testing the price elasticity of travelers. If consumers accept higher fares, the industry may maintain profitability; however, aggressive pricing could eventually dampen the current growth in demand.
