ABSTRACT
The ability of any industry to recover its full costs also depends upon the nature of the markets that it serves. Conventional economic theories of competition implicitly assume that input markets are also competitive. If this is not so then it is possible for a sector to be economically viable but for industries within it to be unsustainable. For any industry to be economically sustainable it must be able to recover its full costs over the long term. One way of setting the financial position of the European airlines in context is to view them as part of what Porter calls the 'value chain'. In the case of scheduled air services, the airline is committed to tying up capital in each flight but then has to compete with other carriers for customers to fill seats. Subsidies have long been used to recover the costs of capital. Natural monopolies can recover their full costs by dint of their market power.
