Airline survival in tough times

In a lecture delivered at Sydney University this week, Cranfield University's Dr Rico Merkert examined strategies for airline survival in an increasingly competitive environment. He was particularly focused on the impact of the size of airlines and operating factors such as stage length and fleet mix on the cost efficiency of operators.

The analysis looked at two inputs (labour and capital) and two outcomes (RPKs and RTKs) to derive some measure of efficiency to use in comparison of airline performance.

Dr Merkert's preliminary results suggest that the Middle East hosts the most efficient airline (only one from that region was included in the analysis), followed by North America, then Europe and Asia Pacific, with Africa and Latin America bringing up the rear.

He also found that size does matter, with the most efficient airlines operating in the 35-100 billion ASK category. That group included Qantas, Air New Zealand, Cathay Pacific, Ryanair and easyJet.

There weren't too many surprises in Merkert's list of strategies for airline survival, but it was good to see a comprehensive list:

* adopt more of the LCC model

* more outsourcing

* cutting capacity/fleet regeneration

* more sophisticated revenue management

* more focus on non-aeronautical revenue sources

* diversification

* alliances

Interestingly too, Merkert's research indicates that while airline recovery is well underway, it lags in the premium cabins; and Merkert believes this may well indicate a structural shift in the market that could have some permanence. This contradicts assertions by several major airlines that their premium revenues are well on the road to recovery.