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Leasing and profitability: Empirical evidence from the airline industry

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  • Bourjade, Sylvain
  • Huc, Regis
  • Muller-Vibes, Catherine

Abstract

In this paper, we empirically measure the impact of aircraft leasing choices on airlines financial performance. We use public data on 73 airlines operating worldwide over the period 1996–2011. In estimating the impact of leasing on profitability, we control for potential endogeneity by applying robust instrumental variables estimation, while introducing a set of individual and macroeconomic factors. Our results are threefold. First, we identify a non-monotonic and concave effect of leasing on an airline’s profit margin, suggesting decreasing marginal returns to leasing in this sector. This is an original finding for the industry. We also derive a confidence interval for the optimal level of leasing. Second, we show that the impact of leasing on an airline’s operating profit is stronger for Low Cost Carriers than for Full Cost Carriers: deviating from the optimal level of leasing might be more harmful for a LCC than for a legacy carrier. Finally, we analyze how an airline’s experience affects the relationship between leasing and profitability.

Suggested Citation

  • Bourjade, Sylvain & Huc, Regis & Muller-Vibes, Catherine, 2017. "Leasing and profitability: Empirical evidence from the airline industry," Transportation Research Part A: Policy and Practice, Elsevier, vol. 97(C), pages 30-46.
    • Handle: RePEc:eee:transa:v:97:y:2017:i:c:p:30-46
    DOI: 10.1016/j.tra.2017.01.001
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    More about this item

    Keywords

    Leasing; Performance; Profit; Airline Industry;
    All these keywords.

    JEL classification:

    • C26 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Instrumental Variables (IV) Estimation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • L93 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Air Transportation

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