Cost Drivers in the European Airline Industry : An empirical analysis on factors influencing cost per flight

Abstract

The airline industry is fiercely competitive, with companies striving to earn good profits. One crucial factor in achieving this is reducing costs, which can be achieved through structured performance management that identifies all cost drivers. Zuidbergs' 2014 article on airline cost economies explored the impact of cost drivers on various airlines globally. This thesis continues his research, focusing on the European market. Financial and operational data from quarterly reports between 2015-2019 and traffic data from the same period constitute the regression analysis's foundation. The findings largely support Zuidberg's, with some exceptions. One significant result is that fleet commonality length significantly reduce the cost per flight, which agrees with Zuidberg. The cost per flight is positively correlated with the average stage length, but the increase in cost is proportionally lower than the increase in stage length, which is contradictory to what Zuidberg found in his study. We also found that a higher load factor results in lower costs per flight, which Zuideberg did not find any evidence of. These three results suggest that (l) it's preferable to have a homogeneous fleet, (2) economies of stage length exist, and (3) that high load factor possibly is a reflection of optimized use of the fleet to meet demand. Future research can include revenue, and/or incorporate non-cost-related characteristics. Furthermore, to enhance the analysis, future research should aim to distinguish airlines quantitatively rather than relying solely on qualitative assessments which has been the method for this thesis.