Effects of operational performance on financial performance

Abstract

Over the past 40 years, global air travel has increased eight-fold: In 1974 air planes carried 421 million people globally. This means that global air travel has been growing up about 5% every year for 4 decades and this trend is expected to continue in the future. While demand growth is an important factor for the profitability of the airline industry, its impact quite depends on the operational performances such as load factor, passenger yield, labor efficiency and fuel efficiency. So, the objective of this study is to analyze companies competing in the airline industry to address how to use the return on invested capital (ROIC) tree model to analyze the effect of operational performances on airline companies’ financial performance and then how to increase the financially inferior com-pany’s performance by intimidating the operationally and financially superior and productive company. In the case of the Korean airline industry, two leading legacy airline companies called as a company A and B were selected to do the computational study for the effect of operational performance on the financial performance and productivity. We analyzed the financially high-performing company using the ROIC tree model and then looked at financially how much the inferior company would be improved if it could imitate some factor consisting of the productivity ratios from the financially high-performing company. © 2019 by the authors; licensee Growing Science, Canada.