The Difficult Part is Yet to Come: Profit Rather than Traffic Alone Remains the Key to Airline Prosperity

Abstract

Despite the first signs of a recovery in passenger traffic, significant challenges remain for the airline industry if it is to produce the returns that will make it attractive to the providers of capital at an acceptable cost. Although there appears to be a better balance between demand and supply, the industry remains in a situation of effective disequilibrium and needs to further reduce its cost base against the background of continuing real excess capacity. With the recovery in traffic the ability of management to continue to make change will become more difficult. The change in the competitive environment in Europe provides both challenge and opportunity. The risk is that the industry will become even less attractive to the providers of capital.