Financial Performance of the US Airline Industry in the past 20 Years

Financial Performance of the US Airline Industry in the past 20 Years

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Case Analysis
While the airline industry connects people across cultures and provides access to different markets, there have been particular concerns about the industry's performance in the last few years (Grant, 2015). Competition in the sector has increased over the previous few years, reducing the cost of air transport tremendously. According to Brown and Kline (2020), a third of all customers have anxiety problems while traveling. The same problem has helped worsen the f profitability performance of airline companies in the United States. Several studies have used short time series and cross-sectional data to examine the financial performance of companies in the industry. Some airlines haßve opted to pursue technological developments to increase profits compared to increasing expenditure on maintenance and staff training. Arguably, lower profitability can be linked to increased accidents rates. However, it can be argued that the financial performance of airline companies is also connected to government regulations and laws relating to carrier safety. While technology advancement has helped increase customers' confidence, it has hurt the financial performance of airline companies across the country.
Previous literature is also interested in the financial performance of airlines, and almost all agreed that the financial performance of airlines needs to capture more extensive measures than solely total revenues and net income. Governments direct on mandatory standards for companies to implement financial ratio analysis to measure the level of their financial health. Previous financial performance research has been discussed in many sectors such as hospitals, banks, small businesses, and palm oil industries. Yang and Baasandorj (2017) argue that the financial ratio is beneficial to measure the performance of the small business, and it can be used to predict failure. Pickrell (2017) used the financial ratio to analyze the financial performance of the Energy and Mineral Resources (EMR) industry. The finding shows that financial ratios are critical indicators to analyze financial performance in the industry. There are many previous empirical studies on financial ratio analysis worldwide across industries (Brown & Kline, 2020). Toward the start of the 21st century, humankind saw the most wrecking disaster in flight history: the militant psychological assaults of September 11. The assaults created a tremendous dread of air travel and comprised an exogenous interest shock; it took the business 17 months to beat the decrease in traveler interest before it got back to its pre-debacle state. Albeit the U.S. government offered liberal monetary help to the industry, a few aircraft applied for chapter 11 insurance. Besides, the 2002 SARS flare-up, joined with the 2003 Iraq war, caused a subsequent interest shock. Generally speaking, the aircraft business is exceptionally touchy to external shocks, changes in the worldwide monetary climate, and political unrest (Yang & Baasandorj, 2017). Consequently, consider the full-scale financial environment in any examination of the determinants of mishap rates.
Liquidity or accounting liquidity refers to the ease and quickness with which assets can be converted to cash (Stamolampros & Korfiatis, 2019). Liquidity is an essential indicator of the company because it represents its ability to meet its short-term liability. The more liquid a company's assets, the less likely the company is to experience problems completing the short-term obligation. Kiracı (2019) found that company systematic risk is negatively related to liquidity. Operational efficiency illustrates how efficiently the company generates outputs by inputs, which is how efficiently it manages its assets. A company with high efficiency may face a small probability of loss or actual failure due to excellent management, and therefore, the company exhibits low risk (Yang & Baasandorj, 2017)). However, high efficiency may be because of implementing an aggressive business strategy (Yang & Baasandorj, 2017); for example, the company pursues fast sales growth without paying much attention to controlling the cost. In this situation, the company is facing a higher risk (Yang & Baasandorj, 2017). Profitability shows the company’s ability to cover all costs and provide returns relative to sales or investments. The logic behind profitability is that the higher the profitability, the lower the probability of company failure.
One another aspect is to analyze the relationship between risk and financial performance. Many research studies have examined the relationship between company systematic risk and size, which usually figured out a negative relationship. Th...