Financing Expansion and Model Development

The relatively recent mantra increasingly adopted by airline CEOs stresses the importance of industry participants' earning their cost of capital by generating a sufficient return on invested capital (ROIC). Cost of capital is defined as the return required by investors. By definition, then, earning the cost of capital is the minimum return necessary to attract the investment necessary to finance the industry's expansion and adaptation to new business models. ROIC, or profit generated divided by capital invested, is essentially a function of two factors, namely profit margin and asset turnover.