Identifying the drivers of profitable airline growth

ABSTRACT

While regulatory changes in the global economic environment have facilitated airline capacity growth, profitability remains as a challenging issue for airlines globally. This study examines whether the airline business model has an impact on the tension between growth and profits and is the first to apply the dynamic system generalised method of moments model to this relationship. We find that full-service network carriers are faced with a trade-off between growth and operating profits, whereas low-cost carriers are able to simultaneously pursue growth-oriented strategies whilst improving profitability. We discuss the key differences in the business models that drive these results and identify that short-term impacts of COVID-19 travel constraints will impact different airlines in distinct ways.