1. INTRODUCTION
The airline industry is one of the largest global industries served by national firms, with operating profits of $45.9 billion in 2018 and $43.2 billion in 2019 on revenue of $812 billion in 2018 and $838 billion in 2019 (Hanlon, 2007, p. 9; IATA, 2019a, 2020a). The industry provides travel service to almost every country in the global context with aircraft fleet of 29,507 in 2018 and 29,697 in 2019 (IATA, 2019b, 2020b). It has played a crucial role in the creation of a global economy in terms of both its own operations and its impacts on related industries, including but not limited to, aircraft manufacturing and tourism. More than 65 million jobs in 2018 and 88 million jobs in 2020 are globally supported in aviation and related tourism, of which 10.2 million people in 2018 and around 11 million people in 2020 work directly in the aviation industry, including airlines, air navigation service providers, airports, the civil aerospace sector, which manufactures aircraft systems, frames, and engines (ATAG, 2018, 2020).
Historically, major technological developments have occurred during the growth phase of the airline industry such as the introduction of jet airplanes for commercial use in the 1950s, and the development of wide-body “jumbo jets” in the 1970s (Belobaba, 2015, pp. 1–2). Starting from 1978, the economic deregulation of airlines has been in effect leading to cost efficiency, operating profitability, and competitive behavior affecting both domestic air travel within each country and the continuing evolution of a highly competitive airline industry.
The airline industry has its own unique characteristics: (1) high growth rate versus low levels of profitability; (2) highly competitive structure; (3) monopolistic or oligopolistic structure; and (4) capital-intensive structure.
(1) The industry has a high rate of growth accompanied by low levels of profitability (Hanlon, 2007, p. 5; AICPA, 2016). As an evidence of growth, indicators show that airlines transported approximately 960 million passengers in 1986, 1.6 million in 1999, 4.4 billion in 2018 and 4.5 million in 2019 (Yergin, Evans, & Vietor, 2000; Isack & Tan, 2008; IATA, 2019b, 2020b).
On the other hand, profitability of the industry has been sensitive to economic factors such as the ability to attract and retain business and leisure passengers, the effects of political and strategic issues like hostilities, acts of war, terrorist attacks, and expansionism (AICPA, 2016; Isack & Tan, 2008; Lyth, 1996), disease and epidemics like COVID-19, the cost and availability of aircraft insurance, fluctuations in the cost of aviation fuel, competitive pricing policies, and government regulation (AICPA, 2016) as well as high operating costs for wages, jet fuel, maintenance, and depreciation expenses (Straszheim, 1969; Isack & Tan, 2008) versus changes in average fare levels and passenger demand (AICPA, 2016). Profitability indicators show that airlines are less profitable due to increases in expenses of $766 billion in 2018 and $795 billion in 2019 with a particular focus on increases in fuel costs, with net income of $27.3 billion in 2018 and $26.4 billion in 2019 (IATA, 2019a, 2020a).
(2) It is a highly competitive industry due to the following parameters: fare pricing, customer service, routes served, flight schedules, types of aircraft, safety record and reputation, code-sharing relationships, in-flight entertainment systems, and frequent-flyer programs (AICPA, 2016).
(3) It shows a monopolistic or oligopolistic structure. While the paper of Tan, Tower, Hancock, and Taplin (2002) included 80 airlines from 52 countries for an average of 1.5 airlines from each country, this chapter includes 79 airlines from 44 countries for an average of 1.79 airlines from each country. The same structure exists today.
(4) It is capital-intensive. The aircraft fleet is either owned or leased. Before leases were accounted for according to IFRS 16 under International Financial Reporting Standards (IFRS) and ASC 842 under United States Generally Accepted Accounting Principles (US GAAP) (Marşap & Yanık...