ABSTRACT
Dealing with chaos is hardly a new phenomenon for the global airline industry. During the past four decades alone, it has survived numerous oil price shocks, significant changes in government regulatory policies, new technologies (ranging from aircraft with advanced capabilities to the introduction of the Internet and related businesses), competition from new categories of airlines and aviation, varying lengths and depths of economic cycles, the events of September 11, 2001, diseases such as SARS and H1N1, two wars in the Gulf region, infrastructure constraints and development, and the impact of changing environmental regulations. While the global airline industry has managed to survive, albeit with a growing tendency towards bankruptcies and mergers, it has not managed to earn a sufficient return on the investment deployed to cover its average weighted cost of capital on an ongoing basis. Figure 1.1 shows the net profit margin for the global airline industry for the past 30 years. There are two outof-the-ordinary points to notice in this chart. First, even during the best years, the highest net profit margins achieved were only about 3 percent. Second, on a cumulative basis, the global airline industry did not break even. For the 30 year period, the industry posted a slight negative cumulative net profit margin, a phenomenon unseen in any other industry.
