Airline performances, revenue and cost management of low-cost carriers

Abstract

This applied research project studies the performance of the leading full service carriers (FSC) and low-cost carriers (LCC) from Asia Pacific, North America, and Europe over a period of 2001 to 2010 using Tobin's q as the key measure. The research also deals with the revenue management and cost management of selected LCCs.

We find that the LCCs performed generally better than FSCs especially in Europe and North America. A converging trend was spotted in the airline performances throughout the decade which is mainly due to the financial crisis, increasing competition and market correction of new entrants' performance anomaly. According to the q ratios calculated, we are confident that Ryanair (Europe), Southwest Airlines (North America) and AirAsia (Asia Pacific) are the leading airlines in their respective continent.

Regarding revenue management, there is a general pattern whereby passenger yield across airlines remains largely stagnant or even declining. However, we observe a significant increase in ancillary revenue contribution towards airlines' total operating revenue. Upon analysis of airlines' cost composition, we find that labour cost and fuel cost, though taking up average of 50% of airlines' total operating expenditure, offer little room for further cost reduction.