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Have the Major U.S. Air Carriers Finally Turned the Corner? A Financial Condition Assessment

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  • Gritta, Richard D.
  • Adams, Brian

Abstract

Rare prior to the deregulation of the airline industry, air carrier bankruptcies became rather endemic in the period 1982-2005. Since 1982, over 175 airlines have filed under the bankruptcy codes. This number includes eight of the carriers that were formerly referred to as “trunk carriers,” now known as “Majors.” Major carriers are defined as those with annual revenues exceeding $1.0 billion. The purpose of this paper is to analyze the recent performance of these carriers using a statistical model specifically designed to predict the likelihood of financial stress for airlines. The paper will also update past research in this important industry to demonstrate the very precarious nature of profitability. The major reasons for the improvement of the industry’s profitability will be briefly discussed. The analysis will show that the current financial condition of the industry has improved significantly due to increased concentration and the market domination of some carriers, very low fuel costs facing the carriers, and the record low interest rates resulting from the Federal Reserve’s easy monetary policy. the industry may still be fragile or vulnerable to changes in these input factors.

Suggested Citation

  • Gritta, Richard D. & Adams, Brian, 2016. "Have the Major U.S. Air Carriers Finally Turned the Corner? A Financial Condition Assessment," Journal of the Transportation Research Forum, Transportation Research Forum, vol. 55(2), August.
    • Handle: RePEc:ags:ndjtrf:262657
    DOI: 10.22004/ag.econ.262657
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    References listed on IDEAS

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    1. Edward I. Altman, 1968. "Financial Ratios, Discriminant Analysis And The Prediction Of Corporate Bankruptcy," Journal of Finance, American Finance Association, vol. 23(4), pages 589-609, September.
    2. Pamela K. Coats & L. Franklin Fant, 1993. "Recognizing Financial Distress Patterns Using a Neural Network Tool," Financial Management, Financial Management Association, vol. 22(3), Fall.
    3. Zhang, Guoqiang & Y. Hu, Michael & Eddy Patuwo, B. & C. Indro, Daniel, 1999. "Artificial neural networks in bankruptcy prediction: General framework and cross-validation analysis," European Journal of Operational Research, Elsevier, vol. 116(1), pages 16-32, July.
    4. Edward I. Altman, 1973. "Predicting Railroad Bankruptcies in America," Bell Journal of Economics, The RAND Corporation, vol. 4(1), pages 184-211, Spring.
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