In a deep-dive look last month, Airline Weekly explained the magic of Aer Lingus, an Irish carrier bringing smiles to its parent company IAG. But Aer Lingus is far from the only thing going right at Europe’s most successful intercontinental airline group. On the contrary, IAG’s success cuts across its multiple airlines.
In its own deep-dive discussion earlier this month, the group regaled investors with explanations of what’s gone right and descriptions of what’s to come. In the peak third quarter, remember, IAG’s net profits excluding special items topped $1.3b, accompanied by a 20% operating margin. That brought its operating margin for the 12 months to September to 13%, precisely the same figure achieved by Delta, America’s most profitable intercontinental airline. Indeed, IAG has established itself as the Delta among Europe’s Big Three, consistently outperforming its rivals and always among the most profitable carriers anywhere in the world—Delta and IAG are the only two legacy airline companies among the world’s top 10 airlines ranked by operating margin for each carrier’s most recent 12 months reported.
But IAG’s path to prosperity is perhaps lesser known than Delta’s. For Delta, the rise was from rock bottom—bankruptcy, in fact, which preceded a monumental merger with Northwest and the formation of industry leading joint ventures. Even in its darkest days, it possessed two key structural advantages, one in the realm of real estate (Atlanta is the world’s busiest airport) and one in the realm of labor relations (only its pilots were unionized).
IAG never did fall so low— none of the group’s current airlines ever went bankrupt. But other elements of its rise to greatness are ones Delta would recognize. Not long after the Delta-Northwest merger, British Airways and Iberia decided they too would merge, creating IAG. The new entity would go on to buy Vueling and Aer Lingus. IAG would similarly if not so aggressively form joint ventures, in its case with Delta’s rival American most importantly, but also Japan Airlines, Finnair and Qatar Airways. Just as Delta dominates the world’s busiest airport, IAG is top dog in the world’s busiest airline market, London. And although heavily unionized, IAG’s airlines all possess significant labor cost advantages relative to Lufthansa and Air France/KLM, many born from battles that involved major…
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