International Airlines Group (IAG) quite possibly has the most boring name of any airline company, but it is also one of the most successful as of late. The parent of British Airways, Iberia, Aer Lingus, Vueling, and LEVEL continues to deliver outstanding results from ALL of its airlines — yes, I’m throwing shade at you, Lufthansa Group — and the recent release of full year 2025 details with a 15.1 percent operating margin was no exception. If IAG isn’t careful about how much wealth it’s creating, it’s going to have to worry about trademark infringement from this company:
The 114-page “results release” is insanely long, but the meat is contained in far fewer pages which are full of interesting nuggets. So, today, I’m going to share those bits and pieces with you, so you don’t have to read the whole thing yourself.
I’ve combed through the release, and this isn’t supposed to be a broad overview of the business. Instead, I’m just going in order. When I saw something I was interested in, I put it aside to mention here.
Return of excess cash of €1.5 billion
–and later–
In line with our policy to manage an efficient but strong balance sheet and in anticipation of the step-up in capital expenditure over the next five years, we will distribute excess cash to shareholders when net leverage is below 1.0x to 1.5x.
When IAG says it this way, it makes sense, doesn’t it? If IAG doesn’t need a ton of cash, why not return it to shareholders? But this is really just a share buyback program, and it’s in addition to the dividend which it just upped for 2025 to 8.9 percent of the share value. Everybody does the share buyback program thing, but that just sounds far more crude. But how do you know how much cash you need? I think we could argue that right about now… more cash is important. Just look at those oil prices (which I’m going to cover soon.)
So this sets a good target, but it also explains other opportunities where cash might be needed. For example…
We are currently participating in the partial disposal process by the Portuguese government of TAP, which we think is a strategically interesting opportunity for the Group but will have to be on terms that create value for IAG’s shareholders.
Mergers and acquisitions obviously create opportunity, and they consider that when determining how much cash to keep around. But also, giant self-inflicted oil price spikes are another reason to keep cash around.
Iberia delivered a 16.2% margin, an excellent performance, with British Airways not far behind at 15.2%
I’ve written about this before, but the rise of Iberia has been nothing short of a miracle. BA has it easy with a focus on heavily slot-controlled Heathrow. But for Iberia to deliver better margins? That is truly amazing.
During 2025 British Airways’ capacity was broadly flat [on the North Atlantic], as lower aircraft availability offset growth
Overall, IAG wants to grow capacity 2 to 4 percent per year, but unsurprisingly, BA is not the growth vehicle. Interestingly, BA is the only airline that could actually grow from Heathrow over the North Atlantic, because it could shift slots from other geographies. But that opportunity doesn’t appear to be worthwhile. That being said…
Both Aer Lingus and Iberia started to deploy their new A321XLR aircraft, profitably delivering growth from greater
frequency, year-round services and targeting secondary destinations. (Note: IAG later says “which are already exceeding expectations from both a customer and financial standpoint”) Competitor growth into both Spain and Ireland from North America has been significant, so the ability to deploy these efficient aircraft is strategically important.
There’s a lot to unpack here. First, it is notable that IAG says the A321XLR deployments have been profitable AND have exceeded expectations. We don’t know how profitable, but this could have gone differently. But yes, in Spain and Ireland, there has been a lot of growth over the Atlantic. IAG sees that, and likes the idea of growing in differentiated ways using narrowbodies on routes that others probably can’t or won’t touch.
Whilst there is more capacity now being added [over the South Atlantic] by other airlines, Iberia’s competitive cost base, investment in its customers and operational efficiency is delivering exceptional performance.
This is a surprise. IAG crows about also putting the A321XLR into Brazil, as well as being the largest airline over the South Atlantic. But I do wonder what IAG means by Iberia’s “competitive cost base.” Is it better than BA? Well of course. But it can’t compete with someone like LATAM. Maybe the Latin carriers aren’t concerning at this point?
[For short-haul,] we have seen good performance in our core market of Spain but demand in Northern Europe has been weaker, exacerbated by higher costs to operate in those markets.
This certainly bodes well for a company with its big Iberia and Vueling operations in Spain. But Northern Europe, well, that would seem to be bad news for the likes of Aer Lingus. Sure it’s not great for BA, but BA has a defensible fortress in a high-dollar market. Aer Lingus doesn’t have that same dynamic, so it will probably spend a lot more time going to sunny spots on the Med than elsewhere.
Our two most important non-financial metrics are On Time Performance (OTP) and Customer NPS
“Non-financial” is certainly the key here since this is a very finance-forward company. Historically, these are not airlines that would win on either metric, but BA has certainly improved its product dramatically, and the whole group has seen on-time performance rise with BA getting its act together most of all.
[IAG Loyalty is] seeing growth coming predominantly from new members collecting Avios from existing IAG partners, as reflected by the business increasing its active customer base by 10% in the year and issuing 13% more Avios in 2025 than in 2024
Credit cards will never be as lucrative in Europe as they are in the US thanks to consumer protections being stronger, but IAG is still making money on this business. And now it’s making more with profit having doubled since 2019 as it keeps doling out those Avios.
[Holidays] higher quality revenue coming mainly from changes to the British Airways Club scheme. It saw a 9% increase in revenue per booking and 83% of revenue now comes from British Airways Club members. In particular, revenue from members of British Airways Club elite tiers is growing more than 15 times faster than revenue from other members
If you’ve ever wondered why airlines change their loyalty programs around, well, here you go. It’s wildly profitable if you do it right, and it can hit the business in different ways.
We now have the objective to ensure our gross leverage remains between 1.5x and 2.0x by increasing the number of unencumbered aircraft in the fleet
There’s a lot of talk about the right amount of debt, and IAG is pretty conservative. I guess that’s what happens when you work to gain and maintain an investment grade rating, something most airlines in the US would envy. (I believe only Alaska, Delta, and Southwest have that today.) But what’s interesting is how IAG is going to focus on its leverage. Instead of just paying down debt — which, to be clear, it did do to the tune of €1.6 billion in 2025 — it is just paying cash for airplanes and boosting the value of its debt-free assets.
