Abstract:

Studies in the air transportation industry generally consider either financial performance or operational performance regardless of the inevitable correlation between them. Sustaining a higher return on investment is achieved through higher efficiency and effective use of available resources. Thus, the investigation of operational factors as components of ROIC can help assessing the strengths and weaknesses of operations of a company. In this study, ROIC tree model has been identified. Within the model, operational performance factors of capacity utilization, passenger yield, labor cost, labor efficiency and fuel cost are considered and their effect on the profitability of a company is revealed. The assessment of the air transportation industry shows that improvement in capacity utilization and passenger yield can dramatically boost ROIC. However, policy improvements in labor cost, labor efficiency, and fuel cost are exceedingly achievable. This study presents a convenient and effective model for the airlines companies and offers handy directions for improving operational and financial performance. The suggested model enables the linkage of efficiency factors as profitability drivers and helps assessing sources of competitive advantage.

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