Buried deep within IAG's Half Year 2018 Earnings Conference Call transcript lies a subtle, yet potentially explosive revelation: a dramatic shift in the airline group's operational strategy, one that positions them to capture a largely untapped market and potentially revolutionize air travel. While most analysts have focused on the headline figures – strong profitability, the share buyback, the expansion of LEVEL – they've missed the quiet revolution happening in the background: IAG's embrace of the Aer Lingus "value model," a high-load factor, price-competitive approach that could unlock unprecedented growth.

This shift, barely hinted at in the transcript, isn't just a passing fad. It's a calculated, strategic move, driven by the success of Aer Lingus since its acquisition by IAG in 2015. Aer Lingus, long known for its disciplined cost control and high load factors, has consistently delivered impressive financial performance, boasting an operating margin of 11.5% and an astonishing ROIC of 27.8% in the first half of 2018. These figures are not only exceptional within IAG's portfolio but stand out as some of the highest in the entire airline industry.

Willie Walsh, IAG's CEO, openly acknowledges Aer Lingus' success, describing their model as "very, very effective" and admitting that it's "even better than we thought." This admiration isn't just lip service; it's translating into tangible action. IAG is aggressively expanding Aer Lingus' transatlantic network, growing it to 17 aircraft and 13 destinations in North America. This isn't just about tapping into existing demand; it's about creating a new market, one where long-haul travel is accessible to a wider range of price-sensitive travelers.

The key to this strategy lies in the load factor. Aer Lingus routinely achieves load factors in the high 90s, a testament to their meticulous capacity management and their ability to fill nearly every seat on every flight. This, combined with their cost-efficient structure, allows them to offer competitive fares while still generating healthy margins.

But the real game-changer, the one that other analysts haven't grasped yet, is the potential for this model to be applied across the entire IAG group. Walsh hints at this, mentioning that IAG is "looking at how we report [load factor]" to enable "better like-for-like comparison" with low-cost carriers like Ryanair and easyJet. This suggests a move towards reporting "sold load factor" rather than "occupied load factor," a subtle change that would highlight the true efficiency of IAG's operations and put them on par with their low-cost rivals.

Hypothetical Impact of Increased Load Factor

Let's hypothesize that IAG, by adopting the Aer Lingus model across its brands, could increase its overall load factor by just 3 percentage points. This might seem like a small increase, but on a network of IAG's scale, the impact would be significant.

This doesn't even factor in the potential cost savings from increased operational efficiency.

But it gets even more exciting. IAG isn't just about increasing load factors; they're about creating a new paradigm for long-haul travel. The launch of LEVEL, a long-haul low-cost carrier, is further proof of this. LEVEL, with its bare-bones approach and focus on point-to-point routes, is perfectly positioned to capture the growing demand for affordable long-haul travel.

IAG Airline Performance (H1 2018)

The combination of Aer Lingus' proven value model and LEVEL's disruptive approach creates a powerful synergy. LEVEL, by feeding passengers onto Aer Lingus' transatlantic network, could unlock exponential growth. Imagine a world where long-haul travel is as accessible and affordable as a train ride. That's the vision IAG is quietly pursuing, and it's a vision that could reshape the entire airline industry.

While it's still early days, the evidence is mounting. IAG's quiet revolution, fueled by the Aer Lingus value model and the disruptive force of LEVEL, has the potential to unlock unprecedented growth and redefine the future of air travel. The question now is, will the rest of the market wake up to this hidden gem before it explodes?

"Fun Fact: The International Airlines Group (IAG) was formed in 2011 through the merger of British Airways and Iberia, two of Europe's oldest and most iconic airlines."