Developments in air transport: implications on investment decisions, profitability and survival of Asian airlines

Developments in air transport: implications on investment decisions, profitability and survival of Asian airlines

Journal: Air Transport Management

Author: Anthony T.H. China, John H. Tay

Published: 2001

Abstract

The investment decisions and profitability of airlines encompasses elements such as air traffic forecasting, the cycles of orders and deliveries, profit cycles, airline growth and survivability in Asia. Regression analysis showed that air traffic growth rates are positively associated with GDP growth rates. The study of the cycles of aircraft orders and deliveries reveal that Asian carriers usually place orders for new aircraft a year after making good profits and these aircraft are delivered after 2–3 years. The delivery of aircraft results in over-capacity, and the decrease in load factors depresses airline profits. Economic cycles are amplified in the industry by capacity investments. The Markov Model was adapted to test the relationship between airline growth and profitability and to predict the survival probabilities of Asian carriers. The results of the study indicate that an airline’s growth and profitability are positively related. The survival probabilities of airlines increase as asset size and profits increase. The key implications for Asian airlines are to improve their forecasting techniques, capacity flexibility and responsiveness to the changing environment.

Keywords: Airline growth; Survivability; Capacity response; Orders; Delivery and profit cycles; Markov chain

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