When is ‘enough’ enough?

We note that Aer Lingus’s 11 per cent margin on revenue is not enough. It compares poorly – by a couple of percentage points – with its fellow member companies in the International Airlines Group (IAG). Compare that margin with what most Irish dairy co-operatives are operating at, and milk and grain producers have a lot to be grateful for that their processing businesses, owned and controlled by supplier members, work off another business model altogether. Yes, milk processing is notoriously low margin, with co-ops skimming off only a sufficient margin to ensure there is good business practice, reinvestment, and R&D. Likewise, while many of the meat processors are privately owned and not subject to scrutiny on their profit margins, those examples in the public realm give some indication of the margins they work off. The Foyle Food Group reported a profit of €20m for last year on revenues of €638m. That’s an operating profit margin of a little in excess of 3 per cent. The bigger meat processing groups including ABP, Dawn, and Kepak, with larger throughputs, and greater purchasing and sales power could be expected to have higher profit margins but only marginally so. That leaves many Irish agricultural food-processing businesses in a far different, tighter margin space compared to the highfliers in aviation and elsewhere. A 2-4 per cent profit margin is the norm not only for Irish meat processors but is recognised as the ballpark figure for counterparts across the world. Informed estimates suggest that Cargill, for instance, has a margin of 3.1 per cent on sales of over $160bn. Margins in those low single-digit figures are precarious. Let’s not feel too sympathetic for meat processors. They know how to squeeze a margin and, if necessary, squeeze their suppliers and buyers to ensure their businesses operate profitably over the long term.
Back to Aer Lingus and other PLCs that have an expectation of high double-digit margins. This is demanded by their shareholders, with share price suffering if performance is not at least equivalent to industry averages. Ultimately, anyone with a pension pot is reliant on these companies securing ever higher profits and profit margins annually so that pension funds can grow and deliver well-resourced pensions. Likewise private investors expect high returns from their shareholdings. All that doesn’t, however, excuse perfectly profitable companies who, in seeking ever higher profits, throw employees on the dungheap to deliver those profits. We have seen it in recent times with tech companies. The false dawn of massive returns from AI developments means that employees, by the thousands globally, must be sacrificed on the redundancy pyre to satisfy the greed of already stinkingly rich owners. When is ‘enough’ enough?