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Leasing and profitability: Empirical evidence from the airline industry

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  • Bourjade, Sylvain
  • Huc, Regis
  • Muller-Vibes, Catherine

Abstract

In this paper, we empirically measure the impact of aircraft leasing choices on airlines financial performance. We use public data on 73 airlines operating worldwide over the period 1996–2011. In estimating the impact of leasing on profitability, we control for potential endogeneity by applying robust instrumental variables estimation, while introducing a set of individual and macroeconomic factors. Our results are threefold. First, we identify a non-monotonic and concave effect of leasing on an airline’s profit margin, suggesting decreasing marginal returns to leasing in this sector. This is an original finding for the industry. We also derive a confidence interval for the optimal level of leasing. Second, we show that the impact of leasing on an airline’s operating profit is stronger for Low Cost Carriers than for Full Cost Carriers: deviating from the optimal level of leasing might be more harmful for a LCC than for a legacy carrier. Finally, we analyze how an airline’s experience affects the relationship between leasing and profitability.

Suggested Citation

  • Bourjade, Sylvain & Huc, Regis & Muller-Vibes, Catherine, 2017. "Leasing and profitability: Empirical evidence from the airline industry," Transportation Research Part A: Policy and Practice, Elsevier, vol. 97(C), pages 30-46.
    • Handle: RePEc:eee:transa:v:97:y:2017:i:c:p:30-46
    DOI: 10.1016/j.tra.2017.01.001
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    Cited by:

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    4. George-Aurelian Tudor, 2022. "Leasing As A Form Of Financing In Romania. From Theory To Practice," Annals - Economy Series, Constantin Brancusi University, Faculty of Economics, vol. 3, pages 91-102, June.
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    7. Slater, Philip J. & Greenfield, Alfred & Godfrey, Earl & Policastro, Felice, 2024. "Losing altitude: The impact of new leasing standards on the liquidity, leverage, profitability and valuation of U.S. and European airlines," Journal of Air Transport Management, Elsevier, vol. 117(C).
    8. repec:aud:audfin:v:20:y:2018:i:48:p:356 is not listed on IDEAS
    9. Ion Ionascu & Mihaela Iona?cu, 2018. "Business Models for Circular Economy and Sustainable Development: the Case of Lease Transactions," The AMFITEATRU ECONOMIC journal, Academy of Economic Studies - Bucharest, Romania, vol. 20(48), pages 356-356.
    10. Wang, Mengyue & Huang, Hongxuan, 2019. "The design of a flexible capital-constrained global supply chain by integrating operational and financial strategies," Omega, Elsevier, vol. 88(C), pages 40-62.
    11. Weiwei Lin & Jing Lu & Jinfu Zhu & Li Xu, 2022. "Research on the Sustainable Development and Dynamic Capabilities of China’s Aircraft Leasing Industry Based on System Dynamics Theory," Sustainability, MDPI, vol. 14(3), pages 1-19, February.
    12. Czerny, Achim I. & Cowan, Simon & Zhang, Anming, 2017. "How to mix per-flight and per-passenger based airport charges: The oligopoly case," Transportation Research Part B: Methodological, Elsevier, vol. 104(C), pages 483-500.
    13. Eva Endrizalova & Martin Novak & Vladimir Nemec & Jaroslava Hyrslova & Petr Mrazek, 2018. "Operating Lease As A Specific Form Of Airlines Outsourcing," Business Logistics in Modern Management, Josip Juraj Strossmayer University of Osijek, Faculty of Economics, Croatia, vol. 18, pages 641-655.
    14. Chen, Wei-Ting & Huang, Kuancheng & Ardiansyah, Muhammad Nashir, 2018. "A mathematical programming model for aircraft leasing decisions," Journal of Air Transport Management, Elsevier, vol. 69(C), pages 15-25.
    15. Asadi, Mehrad & Pham, Son D. & Nguyen, Thao T.T. & Do, Hung Xuan & Brooks, Robert, 2023. "The nexus between oil and airline stock returns: Does time frequency matter?," Energy Economics, Elsevier, vol. 117(C).

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    More about this item

    Keywords

    Leasing; Performance; Profit; Airline Industry;
    All these keywords.

    JEL classification:

    • C26 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Instrumental Variables (IV) Estimation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • L93 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Air Transportation

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