Share:


Influence of airlines’ size and labour costs on profitability

    Matías Ginieis   Affiliation
    ; Ana Beatriz Hernández-Lara   Affiliation
    ; María Victòria Sánchez-Rebull Affiliation

Abstract

It is important to examine profitability in the aviation sector and the factors that may affect it, due to their relevance for the airlines’ survival. The main purpose of this paper is to analyse the effect of three internal business characteristics,namely labour costs, labour productivity and company size, on airlines’ profitability, considering the airline type as a moderating effect. We have collected data of 190 European airlines during a 10-year period (2004–2013) which allowed us to create an unbalanced panel of 1,364 observations. Four types of airlines are considered. Results show that cost per employee has a positive influence on economic performance, especially for major carriers and regional carriers. It is also confirmed that the carrier type influences the relationship between labour costs, labour productivity and company size on the one hand, and economic returns on the other. These findings are relevant as they improve our understanding of economic profitability in different airlines’ types.

Keyword : aviation, profitability, costs, airlines, labour productivity, economic performance

How to Cite
[1]
Ginieis, M., Hernández-Lara, A.B. and Sánchez-Rebull, M.V. 2020. Influence of airlines’ size and labour costs on profitability. Aviation. 24, 4 (Nov. 2020), 157-168. DOI:https://doi.org/10.3846/aviation.2020.12539.
Published in Issue
Nov 11, 2020
Abstract Views
70
PDF Downloads
61
Creative Commons License

This work is licensed under a Creative Commons Attribution 4.0 International License.

References

Alamdari, F., & Morrell, P. (1997). Airline labour cost reduction: post-liberalisation experience USA and Europe. Journal of Air Transport Management, 3(2), 53–66. https://doi.org/10.1016/S0969-6997(97)00024-0

Albers, S., Heuermann, C., & Koch, B. (2010). Internationalization strategies of EU and Asia-Pacific low fare airlines. Journal of Air Transport Management, 16(5), 244–250. https://doi.org/10.1016/j.jairtraman.2009.12.001

Ambrosius, M., Grimm, V., Solch, C., & Zottl, G. (2016). Investment incentives for flexible energy consumption in the industry. International Conference on the European Energy Market. EEM, Porto, Portugal. https://ieeexplore.ieee.org/iel7/7514734/7521173/07521234.pdf

ATAG. (2014). Aviation benefits beyond borders. Powering global economic growth, employment, trade links, tourism and support for sustainable development through air transport. Air Transport Action Group (ATAG), Report, April 2014. https://aviationbenefits.org/media/26786/ATAG__AviationBenefits2014_FULL_LowRes.pdf

ATAG. (2016). Aviation benefits beyond borders. Powering global economic growth, employment, trade links, tourism and support for sustainable development through air transport. Air Transport Action Group (ATAG), Report, July 2016. https://aviationbenefits.org/media/149668/abbb2016_full_a4_web.pdf

Barbot, C., Costa, A., & Sochirca, E. (2008). Airlines performance in the new market context: a comparative productivity and efficiency analysis. Journal of Air Transport Management,14, 270–274. https://doi.org/10.1016/j.jairtraman.2008.05.003

Barkin, T. I., Hertzell, O. S., & Young, S. J. (1995). Facing lowcost competitors: lessons from US airlines. The McKinsey Quarterly, 4(4), 86–99. https://www.questia.com/library/journal/1G1-55427465/facing-low-cost-competitors-lessonsfrom-us-airlines

Berrittella, M., La Franca, L., & Zito, P. (2009). An analytic hierarchy process for ranking operating costs of low cost and full service airlines. Journal of Air Transport Management, 15(5), 249–255. https://doi.org/10.1016/j.jairtraman.2008.11.006

Button, K. (2003). Does the theory of the “core” explain why airlines fail to cover their long-run costs of capital? Journal of Air Transport Management, 9(1), 5–14. https://doi.org/10.1016/S0969-6997(02)00075-3

Caloghirou, Y., Protogerou, A., Spanos, Y. E., & Papagiannakis, L. (2004). Industry-versus firm-specific effects on performance: contrasting SMEs and large-sized firms. European Management Journal, 22(2), 231–243. https://doi.org/10.1016/j.emj.2004.01.017

Campa-Planas, F., Hernandez-Lara, A. B., Sanchez-Rebull, M. V., & Veses-Ibanez, V. (2011). La rentabilidad economica explicada a traves del tamano. Las empresas de ingenieria civil en Espana. Dyna, 86(5), 549–556. https://doi.org/10.6036/4054

Capobianco, H. M. P., & Fernandes, E. (2004). Capital structure in the world airline industry. Transportation Research Part A: Policy and Practice, 38(6), 421–434. https://doi.org/10.1016/j.tra.2004.03.002

Carter, D. A., Rogers, D. A., & Simkins, B. J. (2003). Does fuel hedging make economic sense? The case of the US Airline Industry. AFA 2004 San Diego Meetings (September 16, 2002). https://doi.org/10.2139/ssrn.325402

Chin, A. T. H. & Tay, J. H. (2001). Developments in air transport: implications on investment decisions, profitability and survival of Asian airlines. Journal of Air Transport Management, 7(5), 319–330. https://doi.org/10.1016/S0969-6997(01)00026-6

de Neufville, R. (2008). Low-cost airports for low-cost airlines: Flexible design to manage the risks. Transportation Planning and Technology, 31(1), 35–68. https://doi.org/10.1080/03081060701835688

Dobruszkes, F. (2006). An analysis of European low-cost airlines and their networks. Journal of Transport Geography, 14(4), 249–264. https://doi.org/10.1016/j.jtrangeo.2005.08.005

Doganis, R. (2001). Airline business in the 21st century. Routledge, London. https://doi.org/10.4324/9780203991916

European Cockpit Association. (2006). Upheaval in the European skies. Low cost carriers in Europe: economic data, market and pilot demand forecast. ECA Industrial Sub Group, June 2006. Brussels, Belgium. https://www.eurocockpit.be/sites/default/files/LCC-Book-2006-Final-Web.pdf

Farinas, J. C., Calvo, J. L., Jaumandreu, J. M., Lorenzo, M. J., Huergo, E., & De la Iglesia, C. (1992). La Pyme industrial en Espańa. Civitas, Madrid. https://e-archivo.uc3m.es/handle/10016/5269

Fernandes, E., & Capobianco, H. M. P. (2001). Airline capital structure and returns. Journal of Air Transport Management, 7(3), 137–142. https://doi.org/10.1016/S0969-6997(00)00041-7

Galve, C., & Salas, V. (1993). Propiedad y resultados de la gran empresa espanola. Investigaciones Económicas, 17(2), 207–238. https://www.fundacionsepi.es/investigacion/revistas/paperArchive/May1993/v17i2a1.pdf

Gillen, D., & Lall, A. (2004). Competitive advantage of low-cost carriers: some implications for airports. Journal of Air Transport Management, 10(1), 41–50. https://doi.org/10.1016/j.jairtraman.2003.10.009

Ginieis, M., Sanchez-Rebull, M. V., & Campa-Planas, F. (2012). The academic journal literature on air transport: Analysis using systematic literature review methodology. Journal of Air Transport Management, 19, 31–35. https://doi.org/10.1016/j.jairtraman.2011.12.005

Ginieis, M., Sanchez-Rebull, M. V., & Campa-Planas, F. (2013). Relationship between type of airline and wage of pilots in Europe. Aviation, 17(1), 33–43. https://doi.org/10.3846/16487788.2013.774940

Gonzalez, A., & Correa, A. (1998). Crecimiento y tamano, un estudio empirico. Revista Espańola de Financiación y Contabilidad, 27(95), 541–573. https://www.jstor.org/stable/42782143

Graf, L. (2005). Incompatibilities of the low-cost and network carrier business models within the same airline grouping. Journal of Air Transport Management, 11(5), 313–327. https://doi.org/10.1016/j.jairtraman.2005.07.003

Greer, M. R. (2008). Nothing focuses the mind on productivity quite like the fear of liquidation: Changes in airline productivity in the United States, 2000–2004. Transportation Research Part A: Policy and Practice, 42(2), 414–426. https://doi.org/10.1016/j.tra.2007.11.001

Gudmundsson, S. V. (2004). Management emphasis and performance in the airline industry: An exploratory multilevel analysis. Transportation Research Part E: Logistics and Transportation Review, 40(6), 443–463. https://doi.org/10.1016/j.tre.2004.08.004

Halpern, N. (2008). Lapland’s airports: Facilitating the development of international tourism in a peripheral region. Scandinavian Journal of Hospitality and Tourism, 8(1), 25–47. https://doi.org/10.1080/15022250801987762

Hansen, M. M., Gillen, D., & Djafarian-Tehrani, R. (2001). Aviation infrastructure performance and airline cost: a statistical cost estimation approach. Transportation Research Part E: Logistics and Transportation Review, 37(1), 1–23. https://doi.org/10.1016/S1366-5545(00)00008-9

Heracleous, L., & Wirtz, J. (2009). Strategy and organization at Singapore airlines: achieving sustainable advantage through dual strategy. Journal of Air Transport Management, 15(6), 274–279. https://doi.org/10.1016/j.jairtraman.2008.11.011

Hernandez, A. B., Campa-Planas, F., & Sanchez-Rebull, M. V. (2012). Categorizing the Spanish accommodation sector: does firm size influence economic profitability? Cornell Hospitality Quarterly, 53(3), 257–264. https://doi.org/10.1177/1938965512445459

Heshmati, A., & Kim, J. (2016). Efficiency and competitiveness of international airlines. Springer. https://doi.org/10.1007/978-981-10-1017-0

IATA. (2016). Economic performance of the airline industry. International Air Transport Association (IATA). Report, June 2016. https://www.iata.org/whatwedo/Documents/economics/IATA-Economic-Performance-of-the-Industry-end-year-2016-report.pdf

Jakšić, D., Mijić, K., & Andrić, M. (2012). Analysis of variations in the performance of audit firms in the republic of Serbia. Economic Annals, 57(193), 71–91. https://ideas.repec.org/a/beo/journl/v57y2012i193p71-92.html

Kalemba, N., & Campa-Planas, F. (2019). Safety and the economic and financial performance in the airline industry: Is there any relationship? Aviation, 23(1), 7–14. https://doi.org/10.3846/aviation.2019.9744

Klophaus, R. (2005). Frequent flyer programs for European lowcost airlines: Prospects, risks and implementation guidelines. Journal of Air Transport Management, 11(5), 348–353. https://doi.org/10.1016/j.jairtraman.2005.07.001

Lee, C. H., & Hooy, C. W. (2012). Determinants of systematic financial risk exposures of airlines in North America, Europe and Asia. Journal of Air Transport Management, 24, 31–35. https://doi.org/10.1016/j.jairtraman.2012.06.003

Link, H., Gotze, W., & Himanen, V. (2009). Estimating the marginal costs of airport operation using multivariate time series models with correlated error terms. Journal of Air Transport Management, 15(1), 41–46. https://doi.org/10.1016/j.jairtraman.2008.07.003

Lopes, I. T, Ferraz, D. P., & Gomes Rodrigues, A. M. (2016). The drivers of profitability in the top 30 major airlines worldwide. Measuring Business Excellence, 20(2), 26–37. https://doi.org/10.1108/MBE-09-2015-0045

Maenhout, B., & Vanhoucke, M. (2011). Days on and days off scheduling of pilots under a variable workload. In C. R. Walsh (Ed.), Airline industry: strategies, operations and safety (pp. 193–212). Nova Science Publishers, Inc. https://ideas.repec.org/p/rug/rugwps/11-755.html

Mantin, B. & Wang, J. H. E. (2012). Determinants of profitability and recovery from system-wide shocks: The case of the airline industry. Journal of Airline and Airport Management, 2(1), 1–33. https://doi.org/10.3926/jairm.2

Mason, K. J. (2000). The propensity of business travellers to use low cost airlines. Journal of Transport Geography, 8(2), 107–119. https://doi.org/10.1016/S0966-6923(99)00032-0

Melo Filho, C. R., Salgado, L. H., Sato, R., & Oliveira, A. V. M. (2014). Modeling the effects of wage premiums on airline competition under asymmetric economies of density: A case study from Brazil. Journal of Air Transport Management, 36, 59–68. https://doi.org/10.1016/j.jairtraman.2013.12.010

Merkert, R., & Pearson, J. (2015). A non-parametric efficiency measure incorporating perceived airline service levels and profitability. Journal of Transport Economics and Policy, 49(2), 261–275. https://www.ingentaconnect.com/contentone/lse/jtep/2015/00000049/00000002/art00006

Mohammadi-Amin, M., & Karimi, N. (2018). General aviation in Iran – challenges and opportunities. International Journal of Engineering and Technology (UAE), 7(4), 190–194. https://webcache.googleusercontent.com/search?q=cache:4f8ogHAnySYJ:https://www.sciencepubco.com/index.php/ijet/article/download/22423/11014+&cd=11&hl=es&ct=clnk&gl=es

Morrell, P. (2005). Airlines within airlines: An analysis of US network airline responses to Low Cost Carriers. Journal of Air Transport Management, 11(5), 303–312. https://doi.org/10.1016/j.jairtraman.2005.07.002

Najda, C. (2003). Low-Cost carriers and low fares: competition and concentration in the U.S. airline industry. Department of Economics, Stanford University, May 2003, USA. http://ftp.zew.de/pub/zew-docs/dp/dp11051.pdf

Neal, Z. P., & Kassens-Noor, E. (2011). The business passenger niche: Comparing legacy carriers and southwest during a national recession. Journal of Air Transport Management, 17(4), 231–232. https://doi.org/10.1016/j.jairtraman.2010.09.001

Novak, A., Havel, K., & Adamko, P. (2019). Number of conflicts at the route intersection – minimum distance model. Aviation, 23(1), 1–6. https://doi.org/10.3846/aviation.2019.9746

Oleshko, T., & Heiets, I. (2018). Perspectives of the air transportation market in Ukraine. Aviation, 22, 1–5. https://doi.org/10.3846/aviation.2018.1855

Oum, T. H., Fu, X., & Yu, C. (2005). New evidences on airline efficiency and yields: A comparative analysis of major North American air carriers and its implications. Transport Policy, 12(2), 153–164. https://doi.org/10.1016/j.tranpol.2005.01.002

Oum, T. H., Park, J. H., Kim, K., & Yu, C. (2004). The effect of horizontal alliances on firm productivity and profitability: evidence from the global airline industry. Journal of Business Research, 57, 844–853. https://doi.org/10.1016/S0148-2963(02)00484-8

Oum, T. H., & Yu, C. (1995). A productivity comparison of the world’s major airlines. Journal of Air Transport Management, 2(3/4), 181–195. https://doi.org/10.1016/0969-6997(96)00007-5

Oum, T. H., & Yu, C. (1998). An analysis of profitability of the world’s major airlines. Journal of Air Transport Management, 4(4), 229–237. https://doi.org/10.1016/S0969-6997(98)00023-4

Pantazis, N., & Liefner, I. (2006). The impact of low-cost carriers on catchment areas of established international airports: The case of Hanover Airport, Germany. Journal of Transport Geography, 14(4), 265–272. https://doi.org/10.1016/j.jtrangeo.2005.05.002

Parast, M. M., & Fini, E. H. (2010). The effect of productivity and quality on profitability in US airline industry: An empirical investigation. Managing Service Quality, 20(5), 458–474. https://doi.org/10.1108/09604521011073740

Randoy, T., & Strandenes, S. P. (1997). The effect of public ownership and deregulation in the Scandinavian airline industry. Journal of Air Transport Management, 3(4), 211–215. https://doi.org/10.1016/S0969-6997(97)00028-8

Reynolds-Feighan, A. (2001). Air-freight logistics. In A. M. Brewer, K. J. Button, & D. A. Hensher (Eds.), Handbook of logistics and supply-chain management. Elsevier Science Ltd., UK. https://ideas.repec.org/p/ucn/oapubs/10197-99.html

Rumelt, R. (1991). How much does industry matter? Strategic Management Journal, 12(3), 167–185. https://doi.org/10.1002/smj.4250120302

Santana, I. (2009). Do public service obligations hamper the cost competitiveness of regional airlines? Journal of Air Transport Management, 15(6), 344–349. https://doi.org/10.1016/j.jairtraman.2008.12.001

Shen, Y. (2017). Market competition and market price: Evidence from United/Continental airline merger. Economics of Transportation, 10, 1–7. https://doi.org/10.1016/j.ecotra.2017.03.001

Schmalensee, R. (1985). Do markets differ much? American Economic Review, 75(3), 341–351. https://www.jstor.org/stable/1814804

Sjogren, S., & Soderberg, M. (2011). Productivity of airline carriers and its relation to deregulation, privatisation and membership in strategic alliances. Transportation Research Part E: Logistics and Transportation Review, 47(2), 228–237. https://doi.org/10.1016/j.tre.2010.09.001

Soria-Baledon, M., & Kosoy, N. (2018). “Problematizing” carbon emissions from international aviation and the role of alternative jet fuels in meeting ICAO”s mid-century aspirational goals. Journal of Air Transport Management, 71, 130–137. https://doi.org/10.1016/j.jairtraman.2018.06.001

Srisaeng, P., Baxter, G. S., & Wild, G. (2014). The evolution of low cost carriers in Australia. Aviation 18(4), 203–216. https://doi.org/10.3846/16487788.2014.987485

Stierwald, A. (2010). Determinants of profitability: An analysis of large Australian firms. The University of Melbourne. Melbourne Institute Working Papers Series. Working Paper 3/10, Melbourne. https://econpapers.repec.org/paper/iaeiaewps/wp2010n03.htm

Tesfay, Y. Y. (2016a). Modified panel data regression model and its applications to the airline industry: Modeling the load factor of Europe North and Europe Mid Atlantic flights. Journal of Traffic and Transportation Engineering (English Edition), 3(4), 283–295. https://www.sciencedirect.com/science/article/pii/S2095756415306498

Tesfay, Y. Y. (2016b). Stochastic evaluation of capacity and demand management of the airline industry: the case of airlines of the AEA for flights of Europe-Africa. International Journal of Applied Management Sciences and Engineering (IJAMSE), 3(2), 1–20. https://www.igi-global.com/article/stochastic-evaluation-of-capacity-and-demand-management-of-the-airline-industry/173464

Tesfay, Y. Y., & Solibakke, P. B. (2015). Spectral density estimation of European airlines load factors for Europe-Middle East and Europe-Far East flights. European Transport Research Review, 7(2), 14 https://doi.org/10.1007/s12544-015-0162-8

Tretheway, M. (2011). Comment on “legacy carriers fight back”. Journal of Air Transport Management, 17(1), 40–43. https://doi.org/10.1016/j.jairtraman.2010.10.009

Tsoulakas, G., Belobaba, P., & Swelbar, W. (2008). Cost convergence in the US airline industry: An analysis of unit costs 1995–2006. Journal of Air Transport Management, 14(4), 179–187. https://doi.org/10.1016/j.jairtraman.2008.04.005