Research and analysis on key industry issues prepared by IATA's partners and other industry experts.
January 2008
Hang on tight
by Chris Tarry, CTAIRA
For European airlines, 2008 will pose significant challenges from a combination of an economic slowdown and significant increases in capacity as the no-frills airlines take delivery of more new aircraft. There is a certain inevitability about airlines responding to a weaker economic environment and surplus capacity by reducing fares. It will be a bumpy financial ride. The steps that could be taken in response are reasonably clear, but the outcomes remain unpredictable. Complete report (pdf)
Harnessing technology to meet new environmental challenges
by Dr Andrew Sentance, University of Warwick, UK
Technological improvements can play a major part in reducing the “carbon footprint” of the aviation industry. But the full benefits from investment in new technology are not always reflected in market prices. Government policy instruments can be used to address this “market failure”. There may not be a major technological breakthrough on the immediate horizon for the airline industry. But there are a wide range of areas in which support for research into and adoption of new technology can achieve significant carbon reductions. Complete report (pdf)
November 2007
Great Expectations: The importance of adapting to a changing environment
by Chris Tarry, CTAIRA
The influence of changed or changing expectations on airline behaviour should not be underestimated, especially in respect of risk. There are signs that the airline industry is now in the downswing stage of the cycle; at least in terms of demand growth and the availability of finance. However, in moving from one stage to the next, there will be a series of intermediate points where the market is out of balance. For airlines, a change in expectations is required to enable them to pass on or avoid risk in the new environment. Complete report (pdf)
Carbon offsetting and aviation
by Hugh Somerville, University of Surrey, UK
A growing global market is emerging in carbon offsetting designed to address the climate impact of aircraft emissions. Offsets are different to other market-based measures in that they are voluntary and in many cases can be implemented quickly. Their difficulties lie in uncertainty of the nature of the offer and in the variety of the offers that are available. Complete report (pdf)
July 2007
European Airlines: 10 reasons why we could be at the top of the cycle
by Chris Avery, JP Morgan
A benign demand environment has allowed some European airlines to improve their yields over the last two years. However, industry history suggests that a third year of better yields in 2007 is unlikely. This note highlights key reasons why the peak of the yield cycle may have been reached; increasing the importance of further productivity and efficiency gains to support profitability. Complete report (pdf)
Unions and wages in the US airline industry
by Barry Hirsch, Trinity University, San Antonio, Texas
US airlines have made significant progress in improving labour cost efficiency in recent years. However, there remains a “wage premium” for airline workers compared to similar skilled workers in other industries, particularly unionised workers. Attempts to limit pay increases as carriers regain financial health are necessary, but may not be achievable. A more hostile labour environment could arise, placing pressure on the overall health of US airline industry. Complete report (pdf)
April 2007
Airline M&A activity: A new “super-cycle” or “over-exuberance”?
by Chris Tarry, CTAIRA
The last six months have seen an almost unprecedented focus on merger and acquisition activity in the airline industry. Despite the excitement, it is necessary to question where the value may arise from M&A activity. Size alone has never been a sufficient condition for improved performance. We may be close to the top of the market – a period generally associated with high prices paid for acquisitions. While “fortune favours the brave”, investors must also remember the adage that “those who act in haste repent at leisure”. Complete report (pdf)
Light-handed regulation of airports: The Australian experience
by Peter Forsyth, Monash University
Australia has been experimenting with light-handed regulation of its major airports since 2002. However, there remains ambiguity as to what the system seeks to achieve and its effectiveness. From a broad efficiency perspective it has performed reasonably well, though not without its problems. In terms of minimising the abuse of market power the system has been less successful. Complete report (pdf)
March 2007
Travel & Tourism Competitiveness Index
The World Economic Forum has launched the first-ever Travel and Tourism Index covering 124 countries around the world. Website
January 2007
Corporate travel outlook 2007
by UBS Global Equity Research
The results of the latest UBS corporate travel manager survey show that the bullish outlook amongst travel managers continues. The vast majority do not expect a change in their firm’s travel policies in 2007—a positive indicator since travel policies are typically targeted for cuts early in a softening economy. It appears that the U.S. airlines are behind international competitors with regard to the perception of their international service, which would help to explain the product investments (e.g. lie flat seats) being made by the U.S. carriers. jetBlue’s recent entry into the corporate travel market is likely to have a small overall impact and large network carriers remain the favoured investments for 2007. Complete report (pdf)
Parochialism in international aviation: the paradox of airline ownership and control
by Dan Edwards, UK Civil Aviation Authority
The airline industry, in common with other major business sectors, is currently seeing a lot of speculation and proposals for mergers and acquisition activity. However, in contrast to other sectors such as steel or telecoms, the proposed airline deals are of a national rather than global character. This is not a coincidence, but linked to the tight ownership and control rules within the industry that restrict foreign investment in ‘national’ airlines. This article discusses recent work undertaken by the UK CAA looking at the possibilities for and the benefits of liberalising ownership and control rules. It argues that liberalisation of ownership and control is essential to the healthy development of a truly global airline industry. Care needs to be taken in navigating the transition to a liberalised world, but a clear pathway does exist for beneficial reform to the current rules, while still ensuring that the highest safety and security standards are maintained. Complete report (pdf)
September 2006
Investment incentives and airport regulation
by David Starkie, Economics-Plus Ltd
This article examines the proposition that price-cap regulation creates an incentive to under-invest at privatised airports. Using empirical evidence from price-capped airports in the UK and Ireland, it is concluded that, on balance, the regulated airport companies have inclined towards over-investment rather than under-investment. Complete report (pdf)
Does the S-Curve still exist?
by Urs Binggeli and Lucio Pompeo, McKinsey & Company
The “S-Curve effect” is the phenomenon by which airlines that have a high share of frequencies on a route can attain disproportionately high market shares. With the S-Curve in mind, network managers have historically looked to build a dominant frequency position on certain routes to capture a high share of traffic and revenues. But with significant changes in the airline industry structure in recent years, does the S-Curve still exist? Complete report (pdf)
June 2006
The Economic Impacts of Air Service Liberalisation
This study confirms that liberalising air travel directly benefits economies by increasing GDP, employment, travel and tourism, and exports. Increasing air travel also leads to significant gains in the quality and quantity of direct service to various communities worldwide. Complete report (pdf)
Managing the Airline Economic Cycle
by Chris Tarry, CTAIRA
Though it may not feel like it, the airline economic cycle may already be “as good as it gets” and past its peak. The demand environment is still relatively benign but fuel costs are set to stay high and capacity will increase as record new orders start to be delivered. In essence, for most of the industry it is now a question of “riding the cycle” rather than finding a new source of structural growth. Airlines will be running very hard to do not much more than stand still in financial terms. The even greater challenge is to sustain a profitable performance as economic turbulence kicks in. Complete report (pdf)
Slot concentration at network hubs
by David Starkie, Economics-Plus Ltd
A high concentration of take-off and landing slots in one airline at major hub airports can represent an economically efficient outcome. Concern has previously been raised that the concentration of slots is anti-competitive, leading to calls for slot re-distribution or for new or used slots to be allocated to new entrants only. However, this ignores the efficiency gains available from concentration that would be lost from a lower slot concentration. As such, competition may be better served coming from parallel or substitute routes rather than regulatory intervention at network hubs. Complete report (pdf)