Analysts dissecting International Consolidated Airlines Group's (IAG) recent earnings call are likely focusing on the usual suspects: rising fuel costs, air traffic control woes, and the tantalizing "will they, won't they" saga of a Norwegian Air acquisition. But hidden within Willie Walsh's words lies a potentially seismic shift in strategy, one that could dramatically alter IAG's valuation and put it on a trajectory to rival the likes of Ryanair.

The revelation? A growing obsession with load factor – the percentage of seats filled on a flight. This may seem like a mundane metric, but for IAG, it signifies a potential embrace of the ruthless efficiency that has propelled low-cost carriers to stratospheric valuations.

Traditionally, IAG, with its legacy carriers like British Airways and Iberia, has prioritized revenue maximization. This means filling planes, but not necessarily at the expense of ticket price. Low-cost carriers, on the other hand, operate with a laser focus on load factor, even if it means offering rock-bottom fares. They understand that a packed plane, even with lower fares, often translates to higher profits per seat.

Walsh's admission that IAG is "looking at how we report [load factor]" to better align with Ryanair and easyJet's "sold load factor" metric suggests a potential change in how the company thinks about capacity and pricing. This shift, coupled with the stunning success of IAG's low-cost arm, Aer Lingus, paints a picture of a company poised to leverage load factor as a key driver of profitability.

Aer Lingus, with its 17 transatlantic aircraft flying at nearly full capacity (and a staggering 27.8% ROIC), has become a shining example of how a load-factor-centric model can deliver outsized returns. It's a model IAG seems increasingly keen to replicate across its portfolio.

Operational Performance by Airline (H1 2018)

Source: IAG Half Year 2018 Earnings Call Transcript

But what does this mean for investors?

Imagine a scenario where IAG, spurred by Aer Lingus' success, adopts a more aggressive load factor strategy across its network. This would likely involve a combination of:

The potential impact on IAG's valuation is immense. Ryanair, the undisputed king of load factor, currently boasts a market cap of €16.5 billion, despite operating fewer aircraft than IAG. If IAG can successfully replicate Ryanair's efficiency, its valuation could experience a significant uplift.

Impact of Air Traffic Control Delays

Source: Eurocontrol Data as referenced in IAG Half Year 2018 Earnings Call Transcript

Of course, this is all hypothetical. But the clues are there. Walsh's comments on load factor, coupled with the undeniable success of Aer Lingus, point to a potentially radical transformation within IAG. Investors who recognize this hidden gem now could be handsomely rewarded as IAG takes flight on a new course, fueled by the potent force of load factor obsession.

"Fun Fact: Did you know that IAG, through its various airlines, flies to more countries than any other airline group in the world? That's a testament to the company's global reach and the vast potential that could be unlocked through a load-factor-focused strategy."