Iran war fuels new European airline dichotomy

International Consolidated Airlines

03/08/2026 12:15

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
By Oliver Taslic
LONDON, Aug 3 (Reuters Breakingviews) - After the U.S. and Israel launched strikes on Iran in late February, investors in European airlines braced for turbulence. Carriers risked a double whammy of soaring fuel prices pushing up costs while lower appetite for travel squeezed revenue. By end-March, shares in Europe’s big six listed airlines – Air France-KLM AIRF.PA, Deutsche Lufthansa LHAG.DE, British Airways owner IAG ICAG.L, Ryanair RYA.I, Wizz Air WIZZ.L and easyJet EZJ.L – had all fallen at least 12%. Yet four months on, a more nuanced picture is emerging which favours the so-called flag carriers – Air France-KLM, Lufthansa and IAG.
The U.S. and Iran’s on-off ceasefires have pushed European jet fuel prices to around $1,300 a metric ton, compared to $800 pre-war. That should theoretically lead to lower capacity and higher fares to recoup unhedged fuel costs, but in intra-Europe flying the reverse is happening. Available seats are up over 5% this summer, per Cirium data, which is combining with hesitant consumers to depress fares. Though takeover interest is keeping easyJet’s shares elevated, analyst forecasts compiled by Visible Alpha suggest the Europe-focused airline’s operating profit will fall around 80% in its current financial year.
In contrast, flag carriers are doing better. As seen in luxury goods groups’ recent results, affluent consumers – particularly from the U.S. – keep splashing out, buoyed by the “wealth effect” from AI-driven stock markets. Air France-KLM said on Thursday premium cabins now represented almost 40% of passenger revenue, up from around 34% two years ago. Travellers wanting to swerve the Gulf have also pushed up interest in direct routes between Europe and Asia: IAG said on Friday “passenger revenue per available seat kilometre” on Asia-Pacific routes was up 16.2% in the second quarter at constant currency, indicating strong demand.
The old-school airlines are also less reliant on moving people from A to B to make money. Maintenance – currently a booming industry, thanks to aircraft delivery delays – accounted for almost a third of Lufthansa’s operating profit last year, while IAG’s loyalty division has a 19% operating margin, above most regular airlines. Add it all together and analysts expected, before Air France and IAG’s results, operating profit at the three groups to fall only around 10% this year, on average, before rebounding in 2027 to above pre-war levels.
Investors are rewarding their resilience. As a multiple of forward operating profit, IAG, Air France-KLM and Lufthansa are valued above their 10-year averages excluding the pandemic, according to LSEG data. Higher fares, even once the crisis subsides, would go some way to justifying that. U.S. rivals seem upbeat on fliers’ ability to absorb rising fares – Delta CEO Ed Bastian argued last month that even after recent increases prices remain tangibly below overall inflation since Covid. For now, at least, long-haul carriers are charting a smoother course through the fuel clouds.
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Shares in British Airways owner IAG fell 1.5% on July 31 after it reported second-quarter results. The parent of Iberia and Aer Lingus said operating profit before exceptional items in the three months to June 30 was €1.4 billion, ahead of analyst consensus, and trimmed its 2026 capacity forecast to flat year-on-year.
Air France-KLM reported second-quarter results on July 30. The group reported adjusted operating profit of €484 million, ahead of analyst forecasts. It also trimmed its capacity outlook for the full year – to growth of 2% to 3% compared to 2% to 4% previously – and said its 2026 fuel bill was now expected at $8.9 billion, compared to $9.3 billion previously. Shares rose 4% on the day.
Deutsche Lufthansa will report second-quarter and half-year results on August 4.

(Editing by George Hay; Production by Ujjaini Dutta)
((For previous columns by the author, Reuters customers can click on TASLIC/oliver.taslic@thomsonreuters.com))