The global airline industry has long been criticized for its inability to earn sufficient returns. But in 2016, for the second consecutive year, the industry generated approximately $17 billion in economic profit (EP), down from the 2015 record of roughly $25 billion.
L.E.K. Consulting defines economic profit as the surplus after-tax operating income that companies generate after charging for the capital they employ, and we use EP as an important gauge of an airline’s ability to meet its shareholders’ financial requirements over time. Although total shareholder returns are insightful, they depend on arbitrary start and end dates and often are governed by market movements as much as (or more than) by the idiosyncratic elements impacting the airline.
This Aviation Insights Review provides an update on the global airline industry for the period ending in 2016.