One Big Difference: Unlike at its rivals, the biggest part of International Airlines Group is also one of the best

March 17, 2014In many ways, the International Airlines Group, or IAG, is a lot like its chief European rivals Lufthansa and Air France/KLM. Its margins, in fact, were similar to Lufthansa’s last quarter—and not much higher than those at Air France/KLM. It has shorthaul problems and labor cost problems and problems with high taxation and economic stagnation. And itt has similar solutions to those problems: big cost-cutting programs, shorthaul outsourcing to lower-cost subsidiaries and so on.

But there’s one big difference. At Lufthansa, the core self-branded airline is where margins are lowest and frustrations are highest—the smaller units like Swiss and Austrian, plus the carrier’s maintenance unit, are actually driving group-wide profits. It’s a similar story at Air France/KLM, where the larger French unit has a giant shorthaul headache, with smaller KLM doing better.

Not at IAG.

There, most problems are concentrated at Iberia, which is where the labor drama and outsourcing to Iberia Express is taking place. At British Airways, by contrast, the market environment is better than it’s been in a long time. Strip out Iberia and Vueling (the latter of which happens to be doing well) and BA itself managed a 6% operating margin in 2013. The last time it was that high was in 2007 when it reached 9%—this was before the Iberia merger and long before the Vueling acquisition. Not even 2010, a golden year for many airlines, brought much happiness to BA, stuck then, as it was, in the heart of the U.K. economic meltdown and additionally burdened by cabin crew strikes, ash clouds and regulatory holdup of its JV plans with American.

Now BA faces more exposure to areas of the industry that are thriving—and less exposure to those that aren’t. For example, a full 39% of its ASK capacity touches North America, the healthiest airline market in the world right now. For Lufthansa mainline, the figure is just 32%, with Air France at 24% and KLM at 22%. At the same time, BA has just 13% of its capacity in troubled East Asia, compared to 19%, 18% and 26% for Lufthansa, Air France and KLM, respectively. BA does have more exposure to the Indian subcontinent, a region currently troubled by currency woes. Even so, the region accounts for just 6% of BA’s capacity.

Just as importantly, BA doesn’t have nearly as much exposure to Gulf carriers and Turkish Airlines as the other two of Europe’s Big Three. Without much of a…

Click Here or the button below to sign up for a Free Trial:

This issue is not currently online. To inquire about purchasing a copy, please email