Airline revenue managers do not talk about margin much. Since costs are fixed in the short term, maximising gross revenue is the key to profitability. The same is not true in other industries, where margin optimisation is important. I have personal experience grappling with this distinction. When my business participated in an accelerator in 2017, many others in the programme with me sold to supermarkets. For them and the supermarket buyers, margin not revenue was the first thing they calculated. More recently as a non-exec of a London-based bar and dining room I spend time engaging with margin data on food, drink and other consumables. It is interesting to have the opportunity to think about margin rather than pure revenue. The two disciplines overlap to some extent. An airline filling a flight with low-yield passengers is comparable to a bar selling pints of beer at close to cost. So recent news about how IAG are down-gauging their Aer Lingus operations due to margin rather than revenue or profitability sparked my interest. Advertisement: In this article I will explore IAG’s approach to margin and what this may mean for the future of Aer Lingus’s fleet. I will then explain why I agree with IAG’s view that Aer Lingus can achieve higher margins. Finally, I will take a look at the role Loyalty may have had in shaping IAG’s decision. IAG’s approach to margin IAG CEO Luis Gallego wrote in his group’s 2025 Annual Report: “We continue to execute on our transformation which is delivering market-leading margins at Group and at individual operating company level. Group margins of 15.1% are now at the top of our through-the-cycle range whilst Iberia delivered a 16.2% margin, an excellent performance, with British Airways not far behind at 15.2%. Our margins, as in previous years, continue to be significantly better than those of our global competitors.” IAG has three medium term profitability targets, of which operating margin is one. These are: 1. 12% to 15% operating margin 2. 13% to 16% Return on Invested Capital 3. Under 1.8x net leverage. Are Lingus achieved 11.1% margin in 2025. This was a 2.5% improvement on 2024. For comparison Barcelona-based Vueling, another IAG airline, achieved 12.0%. Margin seems particularly important to IAG on their North Atlantic and Latin American routes, which represent 46.7% of all capacity and 70.4% of long-distance capacity across the group. The 2025 Annual Report says: In the North Atlantic, IAG is driving returns and margins principally through the rebuilding of British Airways’ premium capacity to pre-COVID levels and through Iberia and Aer Lingus’s new A321XLR aircraft, which are already exceeding expectations from both a customer and financial standpoint. In the Latin American market, Iberia’s earnings growth is being accelerated by its fleet of A350 and now A321XLR aircraft. It is interesting to bear this in mind when looking at the routes which Aer Lingus is suspending. Minneapolis is currently operated by the Airbus A321XLR – presumably this aircraft will be deployed somewhere more profitable either on Aer Lingus or Iberia. Denver and Las Vegas are currently operated by an A330, as is Seattle which will become a summer-only service. The Annual Report remarks that the 21 A330-900 aircraft which IAG ordered in 2025 “can be deployed within Aer Lingus, Iberia or LEVEL”. The Annual Report says little about the current A330-200 and -300s operated by Iberia and Aer Lingus. But it is likely that the principle of using aircraft across brands can be extended to these older planes. Presumably the aircraft freed up by suspending Denver and Las Vegas, and Seattle in the winter, will be used to increase higher margin frequencies with Iberia in Latin America. Aer Lingus’s loss will be IAG’s gain One objection to Aer Lingus’s schedule cuts, which also lead to job losses, is that the flights being suspended are profitable. Their 11.1% margin on €2,529 million produced €282 million operating profit in 2025. Let’s do a back-of-the-envelope calculation. Suppose revenue reduces by 10% to €2,276 million and margin increases to 12% in line with Vueling. Operating profit would be €273 million, which is less than current. Some might argue that since Aer Lingus will earn less profit than before the cuts are wrong. This is incorrect from IAG’s point of view. By deploying aircraft on more profitable routes they will expect profits at their other brands to increase by more than Aer Lingus’s go down. IAG says that “all our airlines are capable of margins that are world-leading” and I agree. Aer Lingus probably does have capability to achieve BA or Iberia-level margins. Ireland’s 7.2 million population is relatively small, at roughly 10% of the United Kingdom’s and 14% of Spain’s. But it is nominal GDP per capita which drives demand for air travel and Ireland’s is high. This is why Qatar (population three million) and Singapore (population six million) can both support large airlines. World Bank data shows Ireland’s nominal GDP per capita at $107k in 2024, against $52.6k in the United Kingdom and $35.3k in Spain. Ireland as a whole even beats BA’s lucrative London hub, where GDP per capita is between $90k and $95k. Aer Lingus is also exposed to high income markets in the United States. In their markets, incomes are likely to be closer to Ireland’s GDP per capita than the US average of $85.8k. By trimming a few routes and focusing on those currently working well, Aer Lingus could emerge an even more successful airline. Margin and Loyalty It may be no co-incidence that the IAG co-brand credit card in Ireland is relatively weak compared to BA and Iberia alternatives. Read more
Aer Lingus's margin focus yields wider insights into IAG strategy
Brief
Aer Lingus’s recent route cuts and fleet redeployments reflect IAG’s deliberate shift from maximising gross revenue toward explicit margin optimisation across the group. The 2025 Annual Report (Luis Gallego) cites a 15.1% group operating margin and medium-term targets of 12–15% margin, 13–16% ROIC and <1.8x net leverage; Aer Lingus itself achieved 11.1% margin on €2,529m revenue in 2025 (€282m operating profit). IAG is moving A321XLRs and A350s to higher-margin North Atlantic and Latin American services (46.7% of capacity, 70.4% of long‑haul capacity), suspending lower-priority transatlantic routes (Minneapolis, Denver, Las Vegas, seasonal Seattle) and deploying 21 A330-900s ordered in 2025 across brands. A back-of-envelope shows Aer Lingus could lose a few million in absolute profit from cuts, but IAG expects larger group gains by concentrating aircraft on higher-yield markets; the author also notes Ireland’s high GDP per capita ($107k in 2024) supports yield potential.
Why it matters
IAG is prioritising margin: Group 2025 operating margin was 15.1% (Luis Gallego, 2025 Annual Report) with Iberia 16.2% and British Airways 15.2%; IAG targets are 12–15% operating margin, 13–16% ROIC and net leverage under 1.8x.
Key details
- Aer Lingus reported an 11.1% operating margin in 2025 on €2,529 million revenue, producing €282 million operating profit (a 2.5 percentage-point margin improvement vs 2024); management is suspending or down‑gauging North American routes (Minneapolis on A321XLR; Denver and Las Vegas on A330s; Seattle becoming summer-only).
- IAG is reallocating aircraft for higher-margin routes: the group says A321XLRs and A350s are exceeding expectations on transatlantic and Latin American markets; 21 A330-900s ordered in 2025 are deployable across Aer Lingus, Iberia or LEVEL.
- Rationale backed by market data and a simple calc: trimming Aer Lingus revenue by 10% to €2,276m and lifting margin to 12% yields €273m operating profit (slightly below current €282m) — IAG expects net group profit gains by redeploying capacity to higher-margin Iberia/BA routes; author also cites Ireland’s high nominal GDP per capita ($107k in 2024) as supportive of higher yields.