British Airways: IAG's favourite child should follow reformed sister Iberia's unit cost example

In a May-2013 report on British Airways, we called it the favourite child of parent IAG. Its good behaviour was being rewarded with new fleet toys, while sister Iberia was scolded to mend its ways.

BA should match its best ever operating margin in 2015 and better it in 2016, even covering its cost of capital - a salutary model for its European counterparts. After the global financial crisis, margin recovery was mainly due to unit revenue growth. A RASK downturn in 2014 and 1H2015 has seen margins improve through lower unit cost, but these were largely thanks to lower fuel prices. Even a premium brand cannot always rely on unit revenue growth and BA still needs to cut CASK, with a focus on labour. It remains one of Europe's higher unit cost airlines and Iberia has cut CASK more successfully.

Iberia's reformed ways have been feted like the return of the prodigal and now BA has two more siblings. Up and coming teenager Vueling has been given significant trust and responsibility for one so young, while new arrival Aer Lingus will demand much parental attention. BA will need the maturity and determination of the eldest child to graduate to full value-creating adulthood.