How have current market conditions affected Icelandic airlines compared to international competitors and how to they perform differently?

Abstract

The behavior of the commercial aviation market has changed greatly in the last 4 decade which has caused the market to shift from an oligopoly market to a monopolistic competitive market. This shift has increased competition in the market as low-cost carriers, budget airlines, have entered the market causing the prices of airfare to drop. With increased competition on the market and new airlines entering the market with innovative ideas, it has created operation difficulties for airlines in the market. In particular the Icelandic airlines, as airline expenses have steadily been increasing. Rising jet fuel prices, increasing average wages and exchange rate deficit are among the changes in the market that are weighing heavily on airlines expenses. This thesis discusses how these market factors affect the Icelandic airlines and how their performance is different compared to the competition in the market. The analysis that was conducted showed that the Icelandic airlines spend more on jet fuel and employee’s salary than their competition. However, Icelandair’s unit cost was the second lowest in the analysis which indicates that the airline is more likely to survive if there will be a major decrease in airfare demand in the market. Key words: commercial aviation, Icelandic airlines, jet fuel, average wages, CASK, transatlantic routes.