The Airline Business
The standard academic text on airline economics.
Summary
Rigas Doganis has advised airlines and governments for decades and writes the standard economics text on the industry. This volume covers the structural changes of the 1990s and 2000s, following his earlier Flying Off Course, which covers airline economics and costing in more detail.
The content covers the liberalisation of international aviation, including the bilateral air services agreement system and its erosion through open skies agreements and the European single market; the alliance structures that carriers built to obtain network reach without ownership, and the antitrust immunity questions they raise; the low-cost carrier model and its cost advantages, broken down by source; the effects of internet distribution on the travel agency and computer reservation system intermediaries; airline privatisation; and the persistent question of why the industry as a whole has not earned its cost of capital across the cycle.
Doganis is analytical rather than narrative and the book contains substantial data on costs, yields and margins. Its limitation is currency: the industry has since consolidated into a small number of carriers in each major market, ancillary revenue has transformed low-cost economics, and long-haul low-cost has been attempted and largely failed. The framework for decomposing airline costs and for analysing route economics remains standard.
Key takeaways 7
- Airline profitability across the cycle has not covered the industry's cost of capital, which is a structural rather than a cyclical result.
- Low-cost carrier advantages come from aircraft utilisation, single fleet type, point-to-point routing, secondary airports and labour terms, in measurable proportions.
- Alliances gave carriers network reach where ownership restrictions in bilateral agreements prevented merger.
- Bilateral air services agreements restricted ownership and route access, and their erosion drove the industry's restructuring.
- Internet distribution removed the intermediary margin that travel agents and reservation systems had captured.
- Doganis argues that overcapacity is endemic because governments and lessors keep failing carriers flying.
- Route economics depend on load factor and yield jointly, and carriers that optimise either alone lose money.
Who should read it
Investors and executives in aviation who want the structural economics of the industry, using a current edition for market data.
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