ABSTRACT
This chapter surveys topics in the field of airline economics. As with other industries, airlines use various inputs such as labour, capital, fuel and materials to produce air transport services. The fuel cost is the largest cost component for most airlines. Airports affect passenger demand for air travel in two dimensions: price and service quality. First, passengers pay ticket prices, which will be affected by airline costs. The core financial issues that an airline faces include: aircraft investment; the carrier's capital structure; its decision to buy or lease aircraft; and its use of fuel hedging strategy to mitigate the risk associated with oil price fluctuations. Airlines operate in a dynamic environment with a great number of uncertainties, and with airline revenues and costs being influenced heavily by overall economic activities. There are several instruments to finance an airline's capital expenditures (such as aircraft acquisition), leading to the important decision on capital structure.
