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The aviation value chain: Economic returns and policy issues

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  • Tretheway, Michael W.
  • Markhvida, Kate

Abstract

The airline industry is the central part of the commercial aviation value and supply chain. Nevertheless, it has the lowest profit margin and return on investment compared to other sectors in the chain. This leads to the question whether the airline industry is sustainable in the long run, the so called ‘empty core’ problem. This paper discusses the returns in the aviation supply chain and provides several policy recommendations that might be considered to improve the long-run sustainability of the airline sector and the aviation supply chain as a whole. These include i) recognising the role of airline charges for ancillary products and services, which enables airlines to generate revenues to cover fixed costs in the presence of intense competition that drives the price of the core airline product to marginal cost, ii) reconsidering risk allocation between airlines and airports to eliminate pro-cyclical airport pricing required by some regulators or airline-airport agreements, iii) considering allowing airlines to internalise certain externalities, and iv) increasing vertical competition in distribution channels.

Suggested Citation

  • Tretheway, Michael W. & Markhvida, Kate, 2014. "The aviation value chain: Economic returns and policy issues," Journal of Air Transport Management, Elsevier, vol. 41(C), pages 3-16.
    • Handle: RePEc:eee:jaitra:v:41:y:2014:i:c:p:3-16
    DOI: 10.1016/j.jairtraman.2014.06.011
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