Accounting

ISSN: 2278-3369 International Journal of Advances in Management and Economics Available online at www.managementjournal.info Case Study

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

Stepanyan A*

Faculty of Economics and Business Administration West University of Timisoara Str. J. H. Pestalozzi, nr. 16, 300115, Timisoara, Romania. *Corresponding Author: Email: astepanyan8@gmail.com

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.

Introduction

The financial ratio analysis has always been considered as a fundamental element in financial statement analysis and involves conducting a quantitative analysis of information disclosed in general purpose financial statements of companies under review via various accounting ratios that show relations among different items from the balance sheet, statement of operations and statement of cash flows and are used to evaluate companies’ performance for investing and financing purposes....