Monday, 2 January 2012

Flying Off Course

While Flying Off Course by Rigas Doganis is classic text on the subject of airline finance and marketing actually reading through Flying Off Course is hard work.

From this 2010 published fourth edition of the book Doganis' expertise on the subject is clear, even without knowing of his impressive experience to back it up.

I've learnt a few details about how airline economics tend to work, or not, as is sadly often the case. This book brought all the different elements together in a well structured manner, covering: route restrictions, airline costs, demand forecasting and product planning. It gives a very complete picture with plenty of real world examples.

While the contents was strong the writing style is often difficult to cope with. Sentences are long and unwieldy, covering too much ground without pause or adding too much detail in one go.
In many places it is also repetitive, with details from previous paragraphs reiterated needlessly. Such as in '5.8.3 Methods of Finance' when "…but governments have been loath to put in more capital to finance aircraft purchases,…" is followed two paragraphs later with "Most governments have been loath to put more equity capital into their airlines". Mostly the repetition is not as verbatim, but in many places the book feels as if it could have been made half as long while keeping all the details.

Most of the data in tables is well laid out but in some cases an additional graphic would also have been nice. There are a few graphs, and even a pie chart in the section on airline cost break downs, a few more graphics to quickly see the trends of the details given in the tables would be helpful.
In total the book feels somewhat under-edited and that no-one was challenging Doganis to be more concise. This would have helped to make details clearer in the more dense and sometimes convoluted writing used.

In the end the key messages from the book are clear:

  1. That historically airlines have not faired very well financially is due to an over supply of capacity in the market.
  2. Over-supply is mainly a result of airlines being able to easily and cheaply add more aircraft to their fleets. This is compounded by failing airlines not leaving the market, either through Chapter 11 restructuring or government intervention.

This situation doesn't look like it'll end anytime soon. Poor matching of supply to demand means that most airlines will continue to struggle to make significant profits as they try and fill spare seats.
The additional difficulty for airlines is that it's hard to differentiate your product with that of anyone else, especially if you're flying the same aircraft. To most passengers a seat is a seat, especially on short-haul flights, so the choice mostly comes down to which one is cheapest.

While this might seem like a sad state of affairs, it does mean that for the flying public, ticket prices will remain reasonable and be affected mostly by the change in fuel price and taxes.