The Study on Prerequisites for Operating Losses in the Airline Activity

Abstract

Methods for analyzing the economic activity of airlines and forecasting the prerequisites for bankruptcy of airlines is becoming an important task for development of the industry. In past years, there were examples of a sound negative experience related to bankruptcy of airlines. At the same time, the main volume indicators of the airlines concerned had got positive dynamics shortly before the bankruptcy and were considered by BCG matrix as evident «stars» in terms of growth in production volumes and in the share of the air transportation market.
In Russia that was the case of Sibir airlines which in 2007–2008 barely avoided bankruptcy, as well as of Transaero Airlines that has left the air transportation market forever. The first lowcost airlines, Skyexpress and Avianova, went bankrupt amid high growth in the number of passengers transported.
The task of the research was to create a model that allows to simulate the situation associated with the airline overcoming the so-called «second break-even point». To forecast the possible time period for the airline to receive an operating loss against the background of growing volume indicators, production and financial indicators of one of the leading Russian airlines were used.
The method of research is modelling of volume and financial indicators of the airline activity. The model is proposed to be built not on the study of future changes in the growth of volume and financial indicators, but on the study of dynamics of the rate of change of those indicators. The study is based on the fact that the dynamics of air transportation has a cyclical basis, which is invisible when directly analyzing changes in production and financial indicators, and which is on the contrary clearly visible when studying the dynamics of the rates of those indicators, which makes it possible to simulate a situation when the airline will have an operational loss in the future.