Airline Strategies: An Empirical Analysis of Profitability and Market Share

Abstract

This paper examines the relationship between airline profitability and market share in the context of contemporary strategic business theory.

The paper provides a general overview of the business environment in which airlines operate, provides some of the organizational goals airlines pursue, and develops a situation assessment template for the airline industry. Theories of business management are then evaluated with respect to the nature of the airline industry before major elements of market share and profitability are examined.

An empirical analysis based on a model of a domestic Australian route is used to draw some conclusions about the impact of different business strategies on airline profitability and market share. This is then broadened through the introduction of a simple network model to examine the potential impact of operating a network of services.

The paper reaches the conclusion that the simplistic profitability-market share relationship is not applicable to the airline industry, given that there are a large number of other factors impacting on airline performance.

Keywords: air transportation, business strategy, business economics, market share, profitability

JEL Classification: D21, D29, D40, L19, L93, M21