Why Does the Monopolist in Air Transportation Market Have no Profit

Classical economic models assume that a monopolist or a market leader should have a positive profit. However, the largest aviation group in the Russian air transportation market does not have a stable positive profit. This study analyses the optimal prices and quantities of the monopolist and the oligopolistic leader, using the classic models modified to the nature of the airline business. To get more significant results, the Bootstrap statistical method was used. Among other things, the paper provides a brief analysis of the Russian air transport industry and the main factors that affect the profitability of airlines. The results of economic models for nine different destinations showed that international routes are the most profitable. At the same time, flights to some of the domestic destinations turned out to be excessive or even unprofitable. The main reasons for the lack of stable profitability include an inefficiently high frequency of flights to certain destinations within the country, strong exposure to the rouble fluctuations due to a wide network of international routes, as well as insufficient management of the company’s financial costs.