Traditional Ratio Analysis in the Airline Business: A Case Study of Leading U.S Carriers

Abstract

The paper addresses the traditional ratio analysis in the airline industry based on the U.S example. Given the specificity of the airline industry and its significant vulnerability to adverse changes in economic and business conditions, conducting a ratio analysis aims to reveal the airline industry-specific behavior of the selected liquidity, profitability and solvency ratios computed for eight U.S largest airlines over the period 2007-2012 and find out whether known rules of thumb are applicable to the airline industry. Moreover, via traditional ratios the paper examines the financial performance of selected U.S carriers during the given period by identifying major challenges that they are facing. A brief part in the paper is dedicated to the description of the recent developments in the U.S airline industry and historically high fuel prices that will allow us to better understand the behavior of ratios over time.
Keywords: Airline industry, Ratio analysis, Liquidity, Economic recession, Fuel prices, Earnings, Labor costs.