Proceedings of The 7th International Conference on Research in Business, Management and Finance
Year: 2024
DOI:
[PDF]
Profitability in the Airline Industry: Navigating Through and Beyond COVID-19
Nadia Sbei Trabelsi
ABSTRACT:
This study investigates the critical role of Cost-Volume-Profit (CVP) analysis in shaping the financial outcomes of companies within the aviation industry, with a particular focus on Emirates Airline. The research aims to uncover how fluctuations in business activity and strategic cost management affect profitability, especially during external disruptions like the COVID-19 pandemic. Utilizing a detailed approach, this study incorporates operational performance metrics such as passenger load factor and revenue passenger kilometers to assess resource efficiency and the balance between supply and demand. It provides an in-depth analysis of the financial performance of Emirates Airline over the period from 2020 to 2024, highlighting significant trends and results. The findings underscore the profound influence of fixed costs and operating leverage on the financial health of Emirates Airline. During the early stages of the pandemic, the company experienced a steep decline in profitability due to reduced activity levels leading to losses. The fixed cost structure, including expenses like depreciation, maintenance, and salaries, exacerbated the financial strain during periods of low demand. However, the subsequent years saw a remarkable recovery fueled by increased passenger demand and effective cost management strategies. This recovery transitioned the company from a phase of losses to record-breaking profits, showcasing the advantages of high operating leverage and strategic cost management. The effective alignment of capacity with demand and the judicious use of resources played pivotal roles in this turnaround. This paper enriches the existing body of knowledge by offering a comprehensive analysis of the dynamic interplay between cost control, revenue variations, and profitability in the aviation sector, focusing on Emirates Airline. It provides actionable insights into the effectiveness of CVP analysis in optimizing fixed costs for better financial performance, presenting practical implications for other airlines and related industries. The study emphasizes the importance of strategic cost management in navigating economic challenges and capitalizing on opportunities for profit enhancement. Additionally, it highlights how external market conditions, such as fluctuating fuel prices and geopolitical factors, interact with internal cost structures to influence overall financial performance. This nuanced understanding of cost and revenue dynamics is crucial for developing resilient financial strategies in the face of global economic uncertainties.
keywords: Cost-Volume-Profit analysis – Aviation industry – Financial performance – Fixed costs – Operating leverage