Revenues of the global airline industry have doubled over the past ten years and it is forecast that by 2026 the aviation industry will contribute $1 trillion to world GDP. Yet, ironically for an industry of such sheer scale and economic muscle, profit margins are razor thin and most airlines struggle to break even. This book explores the economic realities of the airline industry, how airlines compete, how they develop their business, and how demand and cost structure, coupled with the complex regulatory regime, produces the airline industry we see today.
Part 1 of the book introduces the reader to the aviation sector of the economy in general and the airline industry in particular, showing how the theory of consumer choice and the theory of the firm apply to airline markets. The discussion ranges over the determinants, elasticity and uncertainty of demand, the airline cost structure (a third of an airline’s operating costs is spent on fuel) and how the industry’s yield management system determines pricing. Part 2 examines market concentration, the intensity of competition between airlines, and their competitive strategies in the world’s two largest deregulated markets, the US and the EU. The emergence of low-cost carriers, the future of the three global alliances and the consolidation of network carriers through merger and acquisition all come under examination. Part 3 evaluates the external effects of aviation, both negative (air and noise pollution, congestion and delays) and positive (economies of agglomeration and productivity improvement in various sectors of the economy). The final part of the book explores the economics of markets most directly related to the commercial passenger airline industry, including airports, air traffic control and aircraft manufacturing and jet engines.
The book provides an unrivalled analysis of how the airline industry makes and loses money and reveals the economic strategies behind those often baffling pricing decisions we encounter each time we book a flight. The book draws on the latest academic research and uses airline-specific case-studies as well as aggregated data sets to give an up-to-date economic analysis of one of the world’s most important business sectors.
PART I Demand and Cost
2. Demand for air travel
PART II Airline Markets
5. Market structure
6. Competition and consolidation
7. Alliances and joint ventures
8. Regulation and deregulation
9. Aviation safety and security
PART III External Effects of Aviation
10. Congestion and delays
11. Air and noise pollution
12. Positive benefits
PART IV Economics of Related Markets
14. Air navigation services
15. Aircraft manufacturing
Volodymyr Bilotkach is Senior Lecturer in Economics at Newcastle University Business School. He previously taught at the University of California, Irvine. He is Associate Editor of the Journal of Air Transport Management and serves on the Editorial Board of Research in Transportation Economics. He has published extensively on airline economics, including airline alliances and mergers, airport regulation and the distribution of airline tickets, and has advised the European Commission on policy issues in the aviation sector.