INFLUENCE OF AIRLINES’ SIZE AND LABOUR COSTS ON PROFITABILITY

Abstract

It is important to examine profitability in the aviation sector and the factors that may affect it, due to their relevance for the airlines’ survival. The main purpose of this paper is to analyse the effect of three internal business characteristics,namely labour costs, labour productivity and company size, on airlines’ profitability, considering the airline type as a moderating effect. We have collected data of 190 European airlines during a 10-year period (2004–2013) which allowed us to create an unbalanced panel of 1,364 observations. Four types of airlines are considered. Results show that cost per employee has a positive influence on economic performance, especially for major carriers and regional carriers. It is also confirmed that the carrier type influences the relationship between labour costs, labour productivity and company size on the one hand, and economic returns on the other. These findings are relevant as they improve our understanding of economic profitability in different airlines’ types.