Financial Ratio Analysis Report

The Financial Ratio Analysis Report

of Delta air lines and American Airlines(AMR)

Airlines industry has witnessed great challenges and development these years. Firstly, fierce competition comes from consolidation between various airlines corporations. “The market is ripe for acquisitions, as rising oil prices pinch carrier profits. Through consolidation, carriers are able to eliminate overlapping routes and reduce overall capacity. With a smaller supply of available seats, prices for remaining seats rise, and lead to an increase in revenue.”In order to pursue lower cost, there are several actions. American Airlines (AMR) was the world's largest carrier as recently as 2006. But mergers have pushed it to third in terms of miles flown by paying passengers over the past few years, behind United Continental (the combination with United airlines finished in mid- 2012) and Delta Air Lines( the integration with Northwest airlines completed in January of 2010). What’s more, Southwest announced its purchase of Air Tran for $1.4 billion in September 2010. The acquisition closed in May 2011 and increased Southwest’s passenger traffic by 25%, bringing lots of profit. .

Secondly, under the pressure of consistent net loss and huge amount of liabilities in companies, all of the major airlines remaining in the market have reorganized in recent years under Chapter 11, which has allowed the airlines to decrease operating costs. Lower cost structures have generally resulted in fare reductions. Till now, Southwest and JetBlue are the only major U.S. airlines that had not filed for bankruptcy reorganization.

Thirdly, weather condition, ticket price and fuel costs, to some extent, influence revenues and operating expenses, and therewith affect the financial ratio indicating the corporations’ ability in liquidity, solvency, financing and profitability.

Based on the uncertainty economic environment and development opportunities, we choose 2 major airlines to analysis...