Leasing and profitability: Empirical evidence from the airline industry

In this paper, the authors empirically measure the impact of aircraft leasing choices on airlines financial performance. The authors use public data on 73 airlines operating worldwide over the period 1996–2011. In estimating the impact of leasing on profitability, the authors control for potential endogeneity by applying robust instrumental variables estimation, while introducing a set of individual and macroeconomic factors. The authors' results are threefold. First, they 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. The authors also derive a confidence interval for the optimal level of leasing. Second, the authors show that the impact of leasing on an airline’s operating profit is stronger for Low Cost Carriers (LCC) 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, the authors analyze how an airline’s experience affects the relationship between leasing and profitability.


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  • Accession Number: 01633984
  • Record Type: Publication
  • Files: TRIS
  • Created Date: May 1 2017 9:37AM