INVESTMENT DECISIONS AND PROFITABILITY OF ASIAN AIRLINES : AN EXPLORATORY STUDY

Abstract

This thesis explores the investment decisions and profitability of Asian Airlines. Different aspects of the industry - air traffic forecasting, the cycles of orders and deliveries, profit cycles, airline growth and survivability in the Asian region are examined. Regression analysis showed that air traffic growth rates are positively associated with GDP growth rates. The study of the cycles of aircraft orders and deliveries revealed that Asian carriers usually place orders for new aircraft a year after making good profits and these aircraft are delivered after 2-3 years. The delivery of aircraft results in over-capacity, and the decrease in Load Factors depresses airline profits. The conclusion is that economic cycles are amplified in the industry by the pattern of ( capacity) investment that itself has generated. The Markov Model was adapted to test the relationship between airline growth and profitability and to predict the survival probabilities of Asian carriers. The results of the study indicate that an airline's growth and profitability are positively related. The survival probabilities of airlines increase as asset size and profits increase. The key implications for Asian airlines are to improve their forecasting techniques, capacity flexibility and responsiveness.