A Strategic Variance Analysis of the Profitability of U.S. Network Air Carriers


  • Paul Caster Fairfield University
  • Carl A. Scheraga none




Airlines, as part of their strategic planning process, articulate positions with regard to cost leadership, product differentiation, and growth. Decisions implemented are dynamic and inter-temporal in nature. Therefore, it is often difficult to assess the effectiveness of changes in strategies, particularly since such effectiveness is often a function of the confounding forces of organizational strategy and market conditions. Managers thus need a multi-period methodology to evaluate the implementation of strategic positions. One such approach is the strategic variance analysis of operating income. Horngren et al. (2000, 2006, 2012) demonstrate a methodological template for decomposing operating income into three components: (1) growth, (2) price recovery, and (3) productivity. It is suggested that the price recovery component assesses a firm’s product differentiation strategy and that the productivity component assesses a firm’s low-cost strategy. Thus, this framework is very much in the spirit of Porter’s (1980) seminal work.This study examines U.S. network airlines in the post-9/11 environment. Utilizing the above methodology, it first identifies comparative strategic positions across airlines and then assesses the implementation efficacy of these positions.