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M.Sc. In Air Transport Management Program  › Courses  › Aviation Economics and Financial Analysis (2015-2016)
Aviation Economics and Financial Analysis (2015-2016)
Course Instructors

The instructors for the course are Dr. David Gillen and Dr. Tuba Toru Delibasi. Their bio can be seen in the links below:

Dr. David Gillen
Dr. Tuba Toru Delibasi

Course Intent

This course will provide background in the micro and macro economics of the airline industry as well as cover the essentials of key topics in airline finance. The course concludes with an examination of airport economics.

The micro-economics will cover the basics of supply and demand. It will cover the differences in the economics of various carrier business models (full service network carriers, low cost carriers, ultra low cost carriers and charter operations. It will look at airline strategy models and tools to assess competitive advantage. It will discuss airline alliances and families, including co-owned major carriers (e.g., Lufthansa-Swiss-Austrian) and feeder carriers. With the emergence of carrier families and alliances, it is increasingly important to understand how competition authorities review proposed acquisitions and alliances. Airline strategies will be discussed including Porter’s five forces model and students will develop a literacy in game theory and how to apply it to airline management and strategy development.

The macro-economics will cover points that are of considerable significance for a global airline where ‘macro literacy is important’. This includes macroeconomic variables and measurement, money, inflation and monetary and interest rate policy, the drivers of exchange rates, business cycles and managing the airline and the importance of productivity growth.

Airline finance will cover the basic sources of funds for carriers, financial planning and financial analysis. We will cover airline cost classification, investment appraisal and risk management. Risk analysis to assess liquidity, profitability and solvency are also examined.

Course Evaluation

  1. In class assignments – Day 3 & 4 (20%)-these will be handed in by groups not individually.
  2. Case analysis – completed by each group, due December 5th – 30%
  3. Final Exam – to be written after the course is completed – 40%
  4. Class Participation: 10%
Class participation grades are based upon the instructor’s assessment of a student’s contribution to class discussion, preparation for class, intelligent discussion and positive engagement with others in the class.

Course Outline

You can see the course outline from here.

Lecture Notes

These are the lecture notes for the course.

Lecture Notes  
Module 01 Introduction: The Aviation Value Chain
Module 02 Financial Performance and Sources of Finance
Module 03 Aspects of Airline Finance
Module 04 Financial Analysis
Module 05 Demand and Supply
Module 06 Airline Costs
Module 07 Airline Business Models/Airline Pricing
Module 08 Pricing
Module 09 Distribution Economics
Module 10 Case Analysis: A Brief Introduction
Module 10 Business Strategy and Competitive Advantage
Module 11 Mergers and Alliances
Module 12 Economics of Mergers and Alliances
Module 13 Applications of Game Theory to Assess Airline Strategies
Module 14 Marcoeconomics Literacy
Module 15 Business Cycle and Economic Indicators
Module 16 International Indicators
Module 17 Money, Interest Rates & Exchange Rates
Module 18 Airport Economics

Course Readings

These are the reading materials for the course.

Reading Materials  
Module 01 Costs
Economic Performance of the Airline Industry
The Aviation Value Chain - Economic Returns and Policy Issues
Modeling Applications in the Airline Industry
The Airline Industry: Trends, Challenges, Strategies
Module 02 Airline Finance
Working Capital and Current Asset Management
Module 03 Example Approach - Airline Business Approach Plan
Managing Risks - Airline Fuel and Currency Hedging
Risk and Return
Module 04 Traditional Ratio Analysis in the Airline Business
Financial Statement Analysis
Module 05 Air Travel Demand
Airline Industry - Price Elasticity of Supply and Demand
Airline Management: Chapter 2
Airline Management: Chapter 3
Module 06 A Comparative Analysis of Cost Change
CAPA Cost Analysis
Identifying Airline Cost Economies
Module 07 Airline Business Models
Airline Economics
An Empirical Analysis of the Airline Industry
Module 08 Airline Competition and Bundling
Airline Economics - The Economics of Unbundling and Ancillary Fees
Airline Pricing and Yield Management
Product Unbundling in the Travel Industry
Cost and Pricing Notes
Airline Revenue in Networks
Why Unbundling is a Good Thing?
Module 09 Airline Distribution
Distribution Costs
New Distribution Capacities
The Case for a New Airline Distribution Model
The Economics of Travel Distribution in an Internet Driven Environment
Module 10 Strategic Responses of Turkish Airlines to the Deregulation in Turkey
Competition Strategies of the Airline Companies in Turkey
Southwest Porter Model
Module 11 Network and Alliance Strategy
Module 12 Baggage Fees - A Game Theoretic Perspective
Game Theory - The Developer's Dilemma, Boeing vs Airbus
How Airlines Compete
Lecture Notes on Game Theory
Subgame Perfect Nash Equilibrium
Module 14 Macroeconomics I
Macroeconomics in MBA
Real Exchange Rates
The State of Macro
Module 15 Macroeconomics II
Macroeconomics for MBA
Module 16 International Macroeconomics - Beyond the Mundell-Fleming Model
International Macroeconomics - Use as Reference
The Six Major Puzzles of International Macroeconomics
Module 17 IS LM Model
Money Interest Rates and Exchange Rates
Module 18 All-in Airport Cost per Enplanement
A Guide to Airport Performance Measures
European Airports and Airlines: Evolving Relationships and the Regulatory Implications
Explaining Variability in Air Traffic Control Costs in the Domestic US
Infrastructure Costs
Methodologies for Assessing ATC Performance

Case Study and Assignments

You can see the assignments in the table below:

Assignments  
Assignment 1 Porter Model Application Assignment
Porter's Five Forces Analysis of Ryanair
Assignment 2 Game Theory Application Assignment

You can reach the answer to the Assignment 2 from this link.

Case study will be delivered at December, 5th, 17:00. No extension allowed. You can see the case study below:

Case Study  
  Estonia Air Big Buy Case Study
Estonia Air Case Reading

Previous Exams

You can reach last year's exam from this link.