ABSTRACT
This chapter reviews and determines both the elements revenue and costs that whether it is possible to find the most significant culprit behind the dismal financial performance of the airline industry. Revenues are the product of traffic and price. The revenues are the result of yields that have been declining, at least in inflation-adjusted terms, over time and traffic which has been in general increasing. In 1984, the Chinese Government sent some of their brightest people to work with me on a forecast of their traffic. Private sector at that time virtually did not exist in China so all tickets were paid for by the central authority as were all elements of cost. In order to explain and/or predict the profitability of airlines one need to analyze a number of components. One is the revenue side and the other is costs. Just as revenues grow over time, costs do too since they are also a function of traffic.
