IAG is setting a 12% return on capital investment target for all of its businesses, and will not invest in their expansion until they hit that threshold, says chief executive Willie Walsh.
Speaking at the Future of Air Transport conference in London on 25 November, Walsh said the 12% threshold has been used to "calibrate" the airline group’s EBIT target of €1.8 billion by 2015, which it set at its recent Capital Markets day.
Based on the new benchmark, IAG-owned Spanish carrier Iberia will not receive capital investment in the short term, adds Walsh: "We will not invest in Iberia unless we can demonstrate that that investment will make a return that exceeds the costs of capital associated with that. Where we are today is, Iberia should be profitable on a small level next year, and we are trying to make an improvement in profitability in 2015."
Walsh says a "discernable" return on capital invested is the new benchmark against which decisions at IAG, and an increasing number of other airlines, are being made.
"We are saying to investors we have a business that is sustainable, we can invest sensibly because the investment that we are making will make a return in excess of costs of capital," says Walsh. "This allows investors and analysts to look at us and say: 'Okay, this a disciplined business making sensible decisions.' This is how we look at investment decisions."