What’s your choice for best-ever airline takeover in Europe?
It’s hard to argue against Lufthansa’s acquisition of Swiss. But there’s a good case too for IAG’s purchase of Aer Lingus, whose profit margins are considerably higher than those of Swiss. So is its rate of growth.
It’s easy to forget that Ireland’s flag carrier, long a government owned company, was never much of a breadwinner. As late as 2014, the last full year before the IAG takeover in mid-2015, Aer Lingus earned a lackluster 5% operating margin—Swiss earned 7% that year. The best Aer Lingus did all decade was a 7% operating margin in 2010, slipping to between 4% and 5% for the next four years. This was hardly shameful; the airline, after all, rebounded from steep losses during the global economic crisis at the end of last decade. Its modest post-2010 profit margins, furthermore, were almost heroic in the context of Ireland’s severe banking crisis and real estate bust, which greatly weighed on the economy until about 2014. At the same time, Aer Lingus shared a hometown with the world’s most profitable airline, Ryanair, which pursued a hostile takeover of Aer Lingus that European competition regulators forbade.
There was more not to like about Aer Lingus and its prospects. Labor strife was widespread. Its only longhaul exposure was to slow-growing North America. And its earnings varied immensely by season. In 2014, for example, its third quarter operating margin was a dazzling 21%. The second quarter wasn’t bad (9%). But the fourth quarter? Negative 9%. And the first quarter? Negative 19%. Yikes. In the end, the company still wound up with an annual profit, but one utterly dependent on the peak summer season. Any disruption during the brief peak—a labor strike, operational woes, security concerns or whatever else— spelled doom for the whole year.
That didn’t deter Ryanair from its takeover attempts. And it didn’t deter IAG, which stepped in with a bid of its own in 2015. Willie Walsh, IAG’s chief then and now, knew Aer Lingus well—he was its CEO in the years following the September 11, 2001 terror attacks in America. Walsh saved the Irish carrier from oblivion with harsh medicine, including draconian labor reforms. It was this record as a cost-cutter that earned him the…
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