International Airlines Group (IAG) is reportedly on the verge of forcing subsidiary Aer Lingus to shrink due to lack of profitability… even though the airline recently reported its second-best financial results in history, and the margins are among the best in the industry. Is this just a logical way to maximize ROI, or is this pure greed?
The airline group has set a medium-term operating margin target of 12-15% for all of its subsidiary airlines. Achieving that benchmark is considered mandatory for the parent company to continue fleet investment and network support. I think it’s important to emphasize just how good those margins are. Delta is known for being extremely profitable, but the airline had a margin of under 10% last year.
In 2025, Aer Lingus reported a profit of €282 million on €2.5 billion of revenue, so that’s a margin of 11.1%. Globally that would be considered exceptional, but it’s not enough for the parent company. As a result, IAG is expected to soon announce significant cuts to Aer Lingus’ network and workforce.
Willie Walsh, the former CEO of Aer Lingus, British Airways, and IAG (in that order), has even suggested that the airline might not have a future unless it reinvents itself. Current IAG CEO Luis Gallego, has even reportedly said the following:
“It is clear that existing transformation efforts are not enough. The airline will need to take decisive actions to restore financial performance and ensure it is positioned to deliver in line with the group’s 12 per cent to 15 per cent operating margin.”
I also think there’s a bit of a “chicken or egg” situation here. Of the subsidiaries, Aer Lingus gets by far the least investment from IAG in terms of new planes, new products, passenger experience, etc. The airline blames that lack of investment on lackluster margins, but also, maybe the margins not being a bit higher are due to those lack of investments?
Also, I think IAG is kind of overlooking the strategic importance of having major hubs, and a multi-carrier strategy, even if it’s just to keep competitors out. I certainly don’t think that shrinking massively will help Aer Lingus’ margins, so if that’s the case, does the airline group just want to shut down Aer Lingus? Does that make sense, for an airline that has great margins, at least competitively? I’m sure Air France-KLM or Lufthansa Group would be delighted to take over Aer Lingus.
Anyway, I don’t know what to think, other than that it’s kind of wild that an airline with industry leading margins is potentially going to be forced to downsize because the margins aren’t good enough.
Aer Lingus objectively has excellent margins
Bottom line
IAG is preparing to downsize Aer Lingus, because the airline is just shy of the airline group’s 12-15% profit margin goal. The argument is that IAG can’t afford to continue to invest in airlines unless they reach those profit goals, and the 11%+ return at Aer Lingus just doesn’t cut it.
