Cycles in the sky: understanding and managing business cycles in the airline market

Abstract

The airline market is a highly cyclical business with relatively poor returns on invested capital. The fluctuations in the market put the carriers under severe economic pressure, and most of them lack strategies for cycle oriented behavior. The focus of the research conducted at Lufthansa German Airlines is the analysis of fundamental, cycle‐generating structures in the airline market and the identification of alternative strategies for effective “cycle‐management”. The system dynamics approach is combined with a statistical forecasting model—a combination that proved to be valuable for the analysis and management of airline business cycles. The article describes a successful system dynamics study in a complex and fast changing environment. Insights generated during the project work are now going to influence order policies for new commercial aircraft for the carrier. Copyright © 2001 John Wiley & Sons, Ltd.

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