ABSTRACT
The economy's business cycle translates into airline profitability. It swings with the business cycle's period. However, there is a time delay between an economic boom and an airline industry profitability peak of approximately three years. The mechanisms in the airline industry that cause this delay remain to be detected. Model experiments have revealed that economic developments and demand shocks strongly influence the airline profit cycle. Every change in the economy gross domestic product (GDP) causes a profitability cycle in the airline industry. Economic changes alter air traffic demand and yields that airlines can achieve. The impact of fuel price developments on the airline profit cycle has been assessed in experiments. Experiments with the airline profit cycle model have answered the research questions: Why are airline profits cyclical? What are the causes and dynamics that determine the cycle's shape? How can the situation be improved?
