Examining the determinants of Indian airlines’ revenues

Abstract

Listen

Translate article

The Indian aviation sector has undergone remarkable growth, driven by the emergence of low-cost carriers and diverse business models. This has resulted in a surge in passenger numbers and aircraft orders, establishing India as a vibrant global aviation market. However, this rapid expansion is accompanied by significant financial challenges, leading to distress and insolvency among numerous airlines. Despite optimistic growth forecasts, high operating costs and relatively low revenue returns pose substantial hurdles. Motivated by these challenges, this study aims to uncover the key factors influencing revenue generation in the Indian aviation industry by analysing expenditure components and their impacts on costs. The objective of this study is to address the research gap stemming from the lack of previous studies on Indian airlines that address endogeneity issues related to airline expenditures. By utilising data from 2007 to 2022 sourced from the audited annual reports of each airline, we aim to provide essential insights into the revenue dynamics of Indian airlines through the application of various econometric models including instrumental variables (IV) regression and generalised method of moments (GMM) models for improving causality and addressing endogeneity. Our findings reveal a positive correlation between unit revenue and factors such as unit expenditure, staff numbers, and passenger volume, while also highlighting the positive impacts of airline alliances and regional connectivity schemes. This research not only sheds light on industry intricacies but also underscores the imperative to address key variables to enhance the sector's sustainability and resilience in the face of ongoing challenges, offering valuable contributions to both academia and industry stakeholders for informed decision-making and strategic planning.