The Cause of Financial Distress in Airlines Industry

The Cause of Financial Distress in Airlines Industry

Introduction

According to International Air Transport Association (IATA), global airline industry has a history of 100 years (2014). Today, there were more than 3 billion passengers and 50 million tonnes of cargo reach their destination through the wonder of flight every year, supporting over 57 million jobs and $2.2 trillion in economic activity (IATA, 2014). The airline industry plays a crucial role in economic because it helps in opening up new possibilities for tourism, business, and human connections, as well as affecting aircraft manufacturers. It is a large and growing industry which required a large capital. Infrastructure of aviation industry has been undergoes a drastic development in term of quality and quantity. Nowadays, people could travel by air easily with an affordable price.

Based on IATA fact sheet of World Industry Statistics, the total net profits of world airlines have shown remarkable instability over the past 24 years. From 1990 to 1993, due to the Gulf War and subsequent economic recession, the world airline industry announced four consecutive years of losses totaling over $22 billion. In the late 1990s, it returned to record profitability with total net profits in excess of $25 billion being reported by world airlines from 1995 to 1999. Even more dramatic was the industry’s plunge into record operating losses and a financial crisis between 2000 and 2005, with cumulative net losses of $40 billion. There are various factors that influence the airline performance such as efficacy of capacity, structural changes, increase in competition, economy slowdown, high labor, as well as, high fuel prices which jeopardize the aviation industry.

Most of the aviat...

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...al distress.

4. To examine whether oil price give a significant impact on financial position of airlines companies.

5. To investigate the relationship between leverage and financial distress of aviation companies.

6. To study whether there is a positive relationship between profitability and financial distress airlines industry.

Research Framework

Works Cited

International Air Transport Association. (2014). 100 years of commercial flight. Retrieved from

http://www.flying100years.com/about

International Air Transport Association. (2014). Fact Sheet: World Industry Statistics. Retrieved

from http://www.iata.org/pressroom/facts_figures/fact_sheets/Documents/industry-facts.pdf

Bankruptcy scores: Ranking the airlines (2011, September 28). The Street. Retrived from

http://www.thestreet.com/story/11260679/1/bankruptcy-scores-ranking-the-airlines.html