European Airlines Research Articles

The impact of the Russia-Ukraine war on the competitiveness of European airlines

Purpose – The research identifies the impact of the Russia-Ukraine war on the stock prices of six publicly traded European airlines and evaluates their ability to adapt to this situation. Research methodology – The dependence of the development of airline stock prices on the level of public and institutional stress due to the war was measured using GoogleTrends and is analysed on the basis of a Vector Autoregression model (VAR). Findings – A short-term negative relationship was confirmed between the development of stock prices and GoogleTrends; the impact of the stress related to the war was negligible about 5 months after the outbreak thereof. Those companies that were the fastest to adapt to the shock of the war in terms of share prices are identified. Research limitations – The link between GoogleTrends, as an input variable reflecting market sentiment, and the stock prices of European airlines, is considered a limitation. Practical implications – The impact of investor sentiment on the returns on the stocks of airlines is a thing of the past; which is an important finding for financial market participants and airlines alike. Originality/value – The ability of the specific airlines to adapt to the shock of war creates a competitive advantage.

Extracting knowledge from customer reviews: an integrated framework for digital platform analytics

AbstractOnline review sites play a crucial role in shaping consumer purchasing decisions, making the analysis of customer feedback essential for businesses. Given the complexity of these reviews, often including both quantitative and qualitative data, advanced analytical frameworks are necessary. To this end, this paper introduces an integrated framework for customer feedback analysis, combining aspect‐based sentiment analysis, multicriteria decision‐making, and a fuzzy rule‐based approach. The proposed system effectively processes both textual and numerical data from online reviews, enabling the extraction of actionable insights. To demonstrate its practical utility, we apply it to a real‐world dataset from a major European airline. The results illustrate the framework's effectiveness in identifying key factors influencing customer satisfaction and pinpointing areas needing improvement. Additionally, data‐driven recommendations are provided to support business decision‐making and enable the customization of products and services to better meet customer expectations.

Assessing the efficacy of EU greenwashing directive: A study of European airlines’ voluntary carbon offset programs

This study evaluates the authenticity, verifiability, and alignment of Voluntary Carbon Offset (VCO) claims made by eighteen European airlines, aligning them with proposed EU regulations specifically targeting greenwashing practices. Our analysis focuses on four key components within VCO programs: measurement, integrity, significance, and alignment. Our findings reveal that European airlines are engaging in greenwashing practices in their VCO programs. The most compelling evidence lies in the insignificance and misalignment of these programs, indicating they are implemented without substantial impact on the airlines' mitigation efforts and are not integrated into their strategies. It is essential to clarify that this research does not delve into the intent behind greenwashing practices but rather aims to shed light on the potential for consumer misperception resulting from such practices. Despite some important limitations, the Greenwashing Directive represents a significant step towards enhancing transparency within the environmental sector, aligning closely with established academic frameworks.

Green Horizons Ahead: Navigating Carbon Neutrality in European Transportation by Sky and Sea

Abstract Research purpose. As carbon neutrality gains momentum, industries worldwide are navigating the challenges and opportunities posed by sustainability goals. This article delves into the strategies undertaken by airlines and maritime companies to achieve carbon neutrality by 2050 in the European Union (EU). The aim of the research is to explore how the aviation and maritime industries in Europe can effectively transition towards carbon neutrality by 2050, considering their similar technological challenges and opportunities. The objective of this research was to identify and compare currently utilized sustainability initiatives in aviation and maritime companies. The focus is on new insight from airline and maritime companies concentrating on their sustainability practices. Common hurdles, innovative solutions, and shared opportunities in the pursuit of environmental sustainability are explored. Design / Methodology / Approach. The selected research method was qualitative research, which was conducted with in-depth and semi-structured interviews and content analysis. Interviews were conducted with airline company and association representatives and maritime company, research, and education experts. The content analysis was based on sustainability reports and sustainability sections of annual reports. Key findings were synthesized into a theoretical framework and this research explores practical initiatives for a sustainable transformation process. Findings. The call to reduce carbon emissions has been initiated by the EU affecting the transportation sector, particularly aviation and maritime industries where the path to achieving carbon neutrality is constrained by significant technical limitations. Despite these challenges, both sectors share a unified objective according to EU climate targets. Both the aviation and maritime industries face challenges on the path to carbon neutrality. Airlines struggle with the limitations of current aviation technology, hindering the feasibility of large-scale technological advancements. Similarly, maritime companies confront regulatory complexities and infrastructure limitations in the adoption of alternative fuels and emission-reduction technologies since the commonly used tactics of reducing fuel consumption by optimizing speed, routes and scheduling are no longer adequate ways and the energy needs of the shipping industry cannot be met only with battery technology. Originality / Value / Practical implications. These challenges offer opportunities for innovation and collaboration. Investments in research and development are driving advancements in electric and hydrogen aircraft, while the maritime industry is also trying to find hydrogen-based solutions for greener development, but the technologies are not widely available. This leads towards combining bio-oils and technological innovations related to the fleet. Case study 1 sheds light on airline sustainability in Europe, revealing strategies and initiatives that European airlines are currently utilizing in their sustainable transformation journey. Case study 2 explores different means of achieving carbon neutrality in the maritime industry, in particular the potential of common reed (Phragmites australis) as a carbon offset tool for reaching net zero. Both industries are making significant strides towards carbon neutrality through a combination of technological innovation, operational efficiencies, and strategic partnerships. Towards green horizons as transport industries converge on the path to carbon neutrality.

Losing altitude: The impact of new leasing standards on the liquidity, leverage, profitability and valuation of U.S. and European airlines

The global airline industry represents fertile ground for research due to its susceptibility to extraneous demand shocks such as fuel price hikes, terrorist attacks, and global pandemics coupled with high leverage and high reliance on leasing. Accounting Standards Codification (ASC) 842 Leases and International Financial Reporting Standard (IFRS) 16 Leases became effective January 1st, 2019 for publicly-traded firms in the U.S. and overseas, requiring capitalization of the majority of leased assets. This study was motivated by how the acts may have affected reported airline liquidity, leverage, profitability and stock price, and if any evidence existed of lease restructure attempts in order to avoid capitalization; which may provide initial impacts. Using a sample of publicly-traded airlines incorporated in the U.S. and Europe, the current study used firm year-level filings from 2017 to 2019 to determine if passage of the acts were associated with changes in liquidity, leverage, profitability and stock price. One-way analysis of variance (ANOVA) and independent samples t-test parametric statistical testing was employed to determine any statistically significant change in the means of selected ratios operationalizing liquidity, leverage, profitability and firm valuation. The results indicated no significance for any of the variables operationalizing the latent constructs providing evidence contrary to previous predictions, and a significant difference between the two regions, worthy of further study. These findings are significant due to the vast financial reporting implications associated with these acts and their potential to skew financial ratios, juxtaposed against the ever-present threat of extraneous demand shocks which permeate this industry. The research also suggests management may have attempted lease restructures to circumvent the capitalization requirements of the act and warrants further research to investigate the generalizability of these findings to other industries.

Dark knights: Exploring resilience and hidden workarounds in commercial aviation through mixed methods

In this study, the duality of adaptive capacity in aviation safety is examined, where the need for resilience of frontline workers conflicts with the expectations and assumptions of upstream entities, leading to system brittleness. We explore three critical categories: responsibilization, the application of practical wisdom in navigating challenging situations, and the unrecognized sacrifices that accompany adaptation. A qualitative research design is used, using three focus groups consisting of pilots in a European airline, the airline’s safety department, and the respective civil aviation authority. The study's findings reveal i. significant organizational constraint and pressure on pilots, resulting in workarounds, personal playbooks, and exhaustion, ii. a culture of apathy, cynicism, and secrecy, contributing to a disconnect between the idealized and practical aspects of work (work-as-imagined versus work-as-done), iii. an oversimplification of complex issues and attributing problems to individual factors rather than systemic factors, iv. normalizing the risk of saturation by pushing the boundaries of safe performance, and v. the current prescriptive training approach may increase risk by not accounting for adaptations that are necessary in the frontline work environment. Recognizing both the technical and social complexities of aviation, the study calls for a reimagined framework away from a prescriptive training approach, as it may increase risk by not accounting for adaptations that are necessary in the frontline work environment. In summary, the study presents a nuanced view of aviation as a complex system, where the push for adaptivity is challenged by ethical dilemmas and trade-offs. Left unresolved, this conflict may hinder aviation safety.

Pathway to net zero: Reviewing sustainable aviation fuels, environmental impacts and pricing

Supporting the pathway to net zero carbon emissions in the aviation industry, sustainable aviation fuels (SAF) will contribute to a large extent to reduce net CO2 emissions in the next decades to deliver on climate targets. For this reason, the large-scale uptake of SAFs in aviation is on top of the agenda of regulatory policy. However, challenges remain for building the respective infrastructure and supply chains at the appropriate scale to produce and distribute SAF at a reasonable cost. Currently, only one percent of fuels consumed by airlines in Europe are blended with sustainable aviation fuels. The paper examines current SAF production pathways, environmental benefits, and estimated fuel prices from the state-of-the art literature. Further, regulatory policies established by governments, regulatory agencies and industry associations are examined, regarding blending mandates in different regional markets. The authors conclude with the statistical analysis of minimum selling prices for different types of SAF, and discuss their respective availability.

A Statistical Review of European Carriers’ Flight Delays and the Assessment of Delay Factors

Disruption is an inherent risk that might arise because of the complexity and dynamic nature of air transport operations. In the aviation business, disruption can happen for a variety of reasons, including poor weather, strikes, and political factors. This study aims to analyse flight delays that European airlines encounter and assess the dependencies between different operation parameters through correspondence analysis in contingency tables that are visually represented using correspondence maps. This study examined data from selected European airlines between 2018 and 2022, which contained information on the length of delay, the reasons associated with it, and the specific characteristics of each flight, such as the type of flight, the type of aircraft, and the scheduled departure time. The result showed that even though there was a large decrease in the overall number of flights operated during the pandemic period in 2020 and 2021, the percentage of delayed flights still varies above 55%. Long-haul flights and larger aircraft tend to have longer delays. Except for 2020 and 2021, the percentage of delayed flights for different lengths of delays and scheduled departure times did not significantly change across the review years. The evaluation reason for delay appeared to increase with time due to airport or authority restrictions, while there was a tendency for the number of delayed flights related to technical aircraft, equipment, and ground operations to decrease. By developing an analysis of the root causes of flight delays using case studies that have already been published by different researchers and determining the degree to which an operating parameter contributes, we may provide guidelines for future studies that will uncover ways to minimize flight delays.

Airspace closures following the war of aggression in Ukraine: The impact on Europe-Asia airfares

The Russian war of aggression in Ukraine and subsequent sanctions imposed by Western countries has resulted in the withdrawal of overflight rights over Russian territory for most Western airlines. On Europe-Asia routes, this causes substantial detours for European airlines and, in turn, increases travel times and operational costs. This paper investigates the impact of the Russian and Ukrainian airspace closures on airfares between Western Europe and Asia. To identify a causal impact, fares on affected routes from Northern Europe are compared with fares on similar unaffected routes from Southern Europe using a difference-in-differences approach. The results show that the airspace closures increase fares for Europe-Asia flights from European airports above the 50th degree of latitude. On average, the fare effect for these flights is USD 43. Furthermore, the findings indicate that, in general, for each additional minute of flight time due to the airspace closures, fares increase by USD 1.56.

COVID-19 IMPACT ON THE AIRPORTS’ AND THEIR HOME CARRIERS’ MARKETING STRATEGY

The article is dedicated to the impact of the crisis caused by the COVID-19 pandemic on the aviation industry and the measures taken by the governments, airports and home carriers to overcome the consequences of the said crisis. Government actions and state aid programs for airports and airlines are reviewed. Practical examples of government aid to airports and airlines are provided. It is also reviewed how these actions affected the performance of the largest European hub airports, namely – London (Heathrow), Istanbul, Paris (Charles de Gaulle), Amsterdam and Madrid. Threats and opportunities for both European airports and airlines are analyzed with the focus on the perspectives of London (Heathrow) airport. The operation of the mentioned airports was analyzed according to the following indicators - the recovery of passenger traffic (2023/2022 and 2023/2019), connectivity, GDP indicators of the countries where the mentioned airports are located. Information on the home carriers of the airports, i.e., the share of the airline's passengers in the total number of passengers handled by the airport, financial indicators of the airlines, plans for the development of the fleet and route network is provided. Recommendations on cooperation between airports and their base airlines are provided.

Strategic Response of European Airlines to Market Dynamics: A Comparative Analysis

The airline market is constantly evolving and requires managers to adopt strategies to meet the changing demands and organizational requirements of the sector. As a result of its liberalization, the European market has transformed from a set of national protected sectors to a single sector. Although the market has grown over the last two decades, the industry has faced difficulties due to various economic, safety, environmental, and health issues, which have recently emerged. This study analyzes the airlines’ strategic responses to increased competition from the turn of the century to 2019, excluding the pandemic period, to focus on market dynamics driven by European competition policy. A five-pillar strategic framework highlighting common strategies and divergences between major European network carriers is outlined through a multi-case analysis of major European markets. The sample includes France, Germany, Italy, and Spain. Results have managerial implications that highlight the importance of strategic adaptability in an industry landscape that continues to evolve. Managerial implications fall into the following three categories: strategic positioning, cost optimization, and business diversification.

Bankruptcy prediction for the European aviation industry: An application of the Altman model

AbstractAviation industry is extremely vulnerable to economic turbulence or a pandemic. Over the past decade, a number of well‐known European airline brands have gone into bankruptcy, with consequences such as leaving thousands of passengers stranded abroad. The present research assesses the predictive power of the updated Altman Z‐score model (1983 and 2017) using data on European airline bankruptcies over the period 2009–2020. The results indicate that the Z″‐score (2017) for private non‐manufacturing companies shows satisfactory predictive power when applied on European aviation industry. In this study, we analyze in depth the performance of the updated Altman Z′‐ and Z″‐scores (1983, 2017), connecting airline's financial and non‐financial information, and provide a comprehensive interpretation of Z‐score predictive power. We aim to contribute to the literature by offering a unique and novel perspective on the Altman model's accuracy for the European air transport industry.

Spectral Clustering Approximation For Large Scale Crew Disruption Data Of An Airline Company For Intelligent Crew Recovery

In the airline industry, after fuel costs, the crew costs con- stitute airlines’ second-highest cost items. For this reason, an airline needs to manage the valuable crew resource effi- ciently. Deviations from plans are fact in airline business and fixing deviations from crew schedules that occurred during operations by minimizing the crew-related delays and associated costs is one of the most important opera- tional burdens of airlines. In this context, the analysis of crew disruption data is vital in order to find disruption characteristics. Clustering analysis is one of the key meth- ods for analyzing the disruption characteristics. In this context, although there have been satisfactory studies in the literature and applications in the industry for small and medium-sized airlines, there is no good solution or industry practice for airlines with extensive networks and fleets. This study aims to analyze and categorize large- scale crew disruption data of a European airline. The relationship between categories of crew disruption and variables such as flight and crew types etc., are determined, and the disruption characteristics are revealed. For this purpose, clusters hidden in the large data set are extracted by spectral clustering. Due to the large size of the input data, a new approximation approach for spectral clustering is introduced. With the help of this new approximation approach, spectral clustering techniques are applied within a limited computational power and time frame as most real world scenario require. Even if the data set is gathered from one airline, the characteristics that are derived from the data is representing most of the cases an airline may face today. and will serve as a basis for further estimation and analysis of crew disruption.

Jet Fuel Price Risk and Proxy Hedging in Spot Markets: A Two-Tier Model Analysis

This paper applies a two-tier model based on fuel hedging (model 1) and the testing of the impact of commodity risk on airline capacity forecasting, which is based on a system dynamics framework (model 2). Model 1 provides a comprehensive examination of the worldwide airline industry, including an analysis of the statistical impact of oil price fluctuations on the sector and the corresponding hedging strategies employed by airlines. This study examines a sample of North American and European airlines over a 10-year timeframe to assess the degree to which these airlines have engaged in kerosene hedging for future periods and the potential impact of such hedging on their corporate value and performance. In model 2, the author integrates a capacity-forecasting model within the system dynamics framework, drawing upon the theory of capacity forecasting. The study examines the impact of commodity risk by analysing the influence of fluctuations in the jet fuel spot price on the average airfare and its subsequent effects on other interdependent capacity variables. The hypotheses presented in this study were formulated based on a comprehensive review of the relevant literature and a causal feedback loop diagram. The diagram effectively depicts the dynamic interrelationships between capacity forecasting and risk variables. Furthermore, the diagram capturing causal feedback loops was transformed into a stock-flow diagram. This diagram was then utilised to evaluate the hypotheses that were derived using a dataset that pertains to the domestic airline market in the United States. The verification of the qualitative and quantitative models demonstrates the proven impact of commodity risk on capacity forecasting.

TAKING STOCK AND SIZING UP: A STUDY OF THE IMPACT OF IFRS 16 LEASES ON THE STOCK PRICE AND SIZE OF PUBLICLY-TRADED EUROPEAN AIRLINES

ABSTRACT The past few decades for the European airline industry could be described as tumultuous ones. Unforeseeable exogenous shocks such as global contagions, terrorist incidents and fluctuating oil prices have caused increased operational and financial risk for airlines around the globe, including in Europe. Such risks are contrasted against an exigent need for strong solvency and liquidity to fund an array of fixed and variable costs, making the airline model unique in this sense. A further characteristic that typifies this industry is exposure to promulgation of new accounting standards which carry the potential for severe changes to financial reporting. Such a standard, IFRS 16, became effective January 1st, 2019 for publicly-traded firms, mandating capitalization of leased “right-of-use” assets and associated liabilities on airline balance sheets which had previously not been reported. Such a reporting change was significant for airlines with estimates of approximately $3 trillion in newly-capitalized assets. In this study, we analyze a longitudinal dataset spanning 2017-2019 to determine whether passage of IFRS 16 was associated with a statistically significant change in stock price and size, with various proxies employed including market capitalization, total assets and load factors. Other variables including operating income, cash flows from operations, revenues, and debt-to-equity ratio were also examined for any significant changes. The longitudinality of this study was purposively selected to avoid the potentially confounding effects of the Covid-19 pandemic. We show that passage of IFRS 16 was not significantly associated with changes in any of the dependent variables utilized in this research. This study offers valuable findings and a viable contribution to the empirical literature in this field by showing that institutional and individual investors appear to have understood that the extreme changes to the balance sheet were ultimately a reporting nuance rather than a detrimental change to actual cash flows and liquidity. Such findings offer positive implications to financial reporting, costs of capital, market capitalization, and the effect of legislative transparency on airline equities markets. Keywords IFRS 16, Airlines, Leases, Market Capitalization, Load Factor

Business model hybridization but heterogeneous economic performance: Insights from low-cost and legacy carriers in Europe

Over the last decade, low-cost and legacy carriers have evolved their respective business models, leading to business model “hybridization”. However, the economic performance impacts of such convergence remain underinvestigated. We therefore evaluate whether airline business model hybridization has led to homogeneous economic performance in Europe. Using 2019 data for 25 European airlines, we implement hierarchical clustering based on principal components. We show that regardless of the analysis level (i.e., the number of clusters into which we group airlines), low-cost and legacy carriers remain distinct groups with specific economic performance characteristics (e.g., volume, revenue, cost and profitability). That is, despite increasing hybridization, the economic performance of airline business models is not homogeneous; overall, low-cost carriers remain more profitable (with lower costs and more affordable fares) than legacy carriers.

SKY’S THE LIMIT? ACCRUAL AND CASH-BASED DETERMINANTS OF U.S. AND EUROPEAN AIRLINE MARKET VALUATION

ABSTRACT The airline industries in both the United States and Europe share many commonalities. Both industries are precariously exposed to a plethora of extraneous demand shocks such as terrorist attacks, global pandemics, and fuel price hikes, as well as more recent issues such as surging post-pandemic passenger demand exacerbated by dire staff shortages. Such risk determinants are juxtaposed against a need for robust liquidity and solvency positions to fund an array of short and long-term cash disbursements. Amidst such industry uncertainties, accurate valuation is imperative to viability, growth and sustainability. This study investigated and compared the accrual and cash-based effects of operating income, operating cash flows and firm size on the market value of publicly-traded U.S. and European airlines. We find a statistically significant relationship between these metrics and airline market valuation. This study is both warranted and timely as airlines face ongoing issues related to surging post-pandemic demand for air travel, extensive airline and airport chaos on both sides of the Atlantic related to staffing shortages and collective bargaining, and continuing uncertainty surrounding fuel prices and fluctuating pandemic numbers. Keywords Airlines, Market Valuation, Cash Flows, Operating Income, Firm Size

Divergences between the European Union and China on reducing international aviation emissions.

This paper provides a historical overview regarding the emergence, development and deepening of divergences between the European Union (EU) and the People's Republic of China (China) in reducing global aviation emissions. It focuses on their divergences on three specific issues, i.e. under which framework to tackle global aviation emissions, whether and how to reflect the Common but Differentiated Responsibilities and Respective Capabilities (CBDR-RC) principle in the design and implementation of the global market-based measures (MBMs) for international aviation and which role the International Civil Aviation Organization (ICAO) should play in offsetting these emissions. Besides, this paper explains the driving forces behind these divergences by examining both normative and economic-related factors, which have formed different stances of both sides. From a Chinese perspective, considerations about the issues of state sovereignty, fairness regarding burden sharing in tackling climate change, the development of China's aviation and aircraft manufacturing and its limited capability in promoting the large-scale SAF deployment help explain its hardline stance on reducing global aviation emissions. As for the EU, perceptions of its leading role in the global climate governance and the CBDR-RC principle, the targets of strengthening the EU ETS role in the global carbon market, and the competitiveness of the European airlines are underlying reasons behind its attempt to include the international aviation under its ETS. Moreover, the EU member states' support to the ICAO can be explained through the conformity between the emissions offsetting objectives under this organisation and the EU's current climate policies.

Risk modeling in the aviation industry as a factor of sustainable development

Research by leading economists has revealed that risks in the aviation industry affect the forecasting models of regional sustainable development. The current study is devoted to the development of approaches to risk assessment on the example of European airlines. This problem has become very problematic after several recent financial crises, when airlines around the world were going through difficult times, and dozens of them had to go bankrupt, receive financial assistance from governments or find their salvation in mergers or acquisitions with larger players in the market with the support of governments. Since the beginning of the pandemic, airlines around the world have faced many more serious problems that have forced them to stop most of their passenger flights due to restrictions aimed at reducing the incidence. Unlike other financial crises, the pandemic faces the most serious problem of uncertainty, since it is difficult to predict how the virus will behave and when it will stop. This study is aimed at developing approaches that can help identify and predict possible airline risks and establish regulatory values of significant indicators for this industry in Europe.

Analiza struktury oferowania rozkładowych linii lotniczych w krajach Europy Środkowej. Część pierwsza

The post-pandemic period is particularly important for the European airline market. We can observe new trends of changes that will shape it for many years to come. We can already clearly see that the Central European region has its own specificity, distinguishing it from Western Europe. In the case of our country, analysing the situation and forecasting the future is particularly important, as decisions are currently being taken regarding huge infrastructure investments. The structure of the number of seats offered by scheduled airlines and the changes in it are very good indicators of the strategies of air carriers, the most important players in the market game. Key words: network carriers, low-cost airlines, trends of change