Despite significant improvements, however, some critical performance measures such as real yields remain well below pre-9/11 levels, indicating a fundamental structural change, and low cost carriers still maintain a 25-40% cost advantage over the Majors. The upshot: airlines have a lot of work ahead - and need to prepare for industry consolidation - if they expect to earn returns that exceed their cost of capital over a full business cycle.

In Europe, as low-cost carriers have expanded aggressively, network airlines increasingly compete for the high-yield long-haul traffic. Consolidation is likely in Europe, as well, as airlines are pressed to manage capacity in line with demand and invest in network differentiation.

The long-term winners will be large airline groups that can extract high yields, as well as low-cost carriers that manage to maintain their cultures and their keen focus on affordable air travel. Second-tier carriers face some difficult choices, coming under increasing pressure and subject to the ongoing business cycles in the industry.

Bain's Transportation Services experience

In this challenging environment, airlines can take steps to improve their business - but it requires decisive action. Bain's approach to consulting - focused on strategies with the highest impact and effective implementation - is well-suited to the airline industry, where there is no time to waste.

The returns on Bain's airline clients have outpaced the S&P by 4 to 1. Bain's expertise in airline consulting includes work in strategy, mergers and acquisitions, turnarounds, fleet and network optimization, pricing, labor relations, operations restructuring and business plan formation.

To find out more about Bain's work in this industry, please contact the practice.