Engaging the autopilot

The airline industry has failed to earn its cost of capital in every year of its existence. We analysed a large number of variables, which led to six secrets:

Effectively managing capital base, especially aircraft: Return on invested capital (ROIC) is the best metric of value creation. Most airlines focus on raising the numerator, profit, but overlook the denominator, capital base.

Knowing that conduct matters more than market structure: Airlines based in slow-growing home markets outperform their peers in high-growth markets. Just look at the Asian market, the lowest-performing region.


Giving customers choice through ancillaries: Ancillaries are an undertapped channel of value for many airlines. Ancillary sales performance and ROIC show a mildly positive relationship.

Creating pockets of privilege in flight network: Every carrier's flight network has some privileges. Successful airlines are able to identify, create and monetise niches in their flight network.

Differentiating themselves by reputation: It's crucial for airlines to build a positive reputation by keeping standards up. Carriers reliably on time and good operational performance enjoy higher returns.

Be a great organisation: Healthy companies have a highly skilled and motivated workforce. Decision-making is swift and fact-based, and departments work seamlessly with one another.

From 'The Six Secrets of Profitable Airlines', McKinsey & Co