It is the only airline among the big four, whose liquidity remains higher than its total debt. Mergers and acquisitions in aviation - management and economic perspectives on the size of airlines. Mallikarjun (2015) investigated U.S. airlines performance in 2012 using an unoriented network DEA model and revealed that major U.S. airlines demonstrated higher efficiency in managing operating expenses and revenue generation than national U.S. airlines. Studies in this developing field include Gramani (2012), Pires and Fernandes (2012), and Zhang et al. is Professor of Finance, Director of CUNY Aviation Institute, and Chairperson of the Department of Accounting and Finance of York College, The City University of New York. 427 40 0000023249 00000 n

Secure .gov websites use HTTPS Zhang Q, Koutmos D, Chen K, Zhu J. In addition to these key financial ratios, investors examine a number of specific airline industry performance metrics. 0000022755 00000 n Figures2, ,3,3, and and44 depict the average efficiency scores from the two-stage centralized network DEA models for all carriers, full-service network carriers, and low-cost carriers, respectively. 3 0 obj

Nevertheless, since full-service carriers were less efficient in both stages of corporate activities, full-service carriers would find it easier to reallocate resources to boost efficiency (Duygun et al., 2016).

We've updated our Privacy Policy, which will go in to effect on September 1, 2022. earnings before interest, taxes, depreciation, and amortization, U.S. Airlines Net Profit in 3rd Quarter 2021 Nearly Triples 2nd Quarter, U.S. Airlines Show First Profit Since COVID-19 in 2nd Quarter 2021.

Capital is a financial asset that usually comes with a cost. Barros and Peypoch (2009) examined a group of European airlines from 2000 to 2005 using a two-stage DEA approach. 0000021737 00000 n Journalist - Karols extensive background in economics and finance enables him to provide deep dives into the business side of aviation. /Pages 424 0 R 0000004114 00000 n The operator has one of the highest debt and current liabilities, which may threaten the airline's survival in the quarters to come. }x`Y#5y%25[=~oP O? Key financial metrics analyzed by investors are the quick ratio, ROA, and the debt-to-capitalization ratio. Previously published in industry leading publications including Airways Magazine and Airliner World, Karols close relationship with LOT Polish and profound understanding of the economic drivers behind airline businesses adds distinctive gravity to his work. Estimation and inference in two-stage, semi-parametric models of production processes.

This financial ratio is particularly useful for analyzing airline companies because they are capital-intensive and have significant amounts of debt. xref

Each report includes 18 quarters of data. The debt-to-capitalization ratio is calculated as total debt divided by total available capital. Dr. Hsus research interests are in quantitative finance and airline finance. 0000025967 00000 n Corbet S, OConnell JF, Efthymiou M, Guiomard C, Lucey B.

By continuing you agree to the use of cookies. Berghfer B, Lucey B. How do you see the situation panning out for the rest of the year? Since the average stage length is related to an airlines network planning and its business model, the empirical results reiterate the role of business models in an airlines ability to attain efficiency. Among all carriers, Spirit Airlines had the highest frequency of reaching the efficiency score of one, which was related to its performance in the operations stage. According to the U.S. Department of Transportation (DOT), the airline industry has four basic categoriesinternational, national, regional, and cargo. ", Bureau of Transportation Statistics. United's liquidity stood at a worrying $7.5 billion with a daily cash burn of $25 million per day in June, or $2.25 billion a quarter. While the Office of Aviation Analysis has reviewed the reports for obvious errors, the data are presented as reported by the carriers to the Bureau of Transportation Statistics and have not been verified or compared to publicly filed financial documents. In this study, we employed the two-stage centralized network DEA model proposed by Liang et al.

Greer MR. As many corporate reconstructions and consolidations among airlines are expected in the coming years, the empirical findings in this paper identify areas that could be considered when making strategic resource allocation decisions. /S 2133 norwegian

(2012) showed that low-cost carriers were generally more efficient than full-service network carriers and revealed the considerable role of corporate governance in airline performance. Return on assets measures profitability, indicating the per dollar profits a company earns on its assets. Summary of recent studies on airline efficiency, Inputs: labor, fuel, passenger seating capacity, Two-stage DEA model and truncated bootstrapped regression, Inputs: employees, operational cost, planes, Outputs: revenue passenger kilometer, earnings before interest and taxes, Inputs: full-time employee, available tonne kilometer, full-time employee_price, available tonne kilometer_price, Outputs: revenue passenger kilometer, revenue tonne kilometre, Inputs: cost per available seat mile, salaries, wages, & benefits per available seat mile, fuel expense per available seat mile, fuel cost, gallon used, Outputs: revenue passenger mile, passenger revenue, 1st phase inputs: aircraft fuel, wages, salaries and benefits, CASM, 2nd phase outputs: flight revenue, flight income, Outputs: revenue passenger kilometers, revenue tonne kilometer, revenue, Inputs: full-time employee, fuel, seats, flight, maintenance expense, cost of ground property and equipment, Intermediates: available seat mile, available ton mile, Outputs: revenue passenger mile, non-passenger revenue, Outputs: firm size, tangibility of assets, intangible assets, Inputs: total cost, full-time employee, gallons used, Outputs: total revenue, revenue passenger mile, load factor, Inputs: employees, operating cost, available seat kilometer, Outputs: available tonne kilometer, CO2 emission, Inputs: available ton kilometer, employees, Outputs: revenue ton kilometer, profits, and carbon emissions, DEA model and bootstrapped truncated regression, Inputs: kilometers flown, employees, total assets, Inputs: material, energy, capital, passenger, revenue passenger kilometer, labor, other operating expenses, Outputs: operating revenue, return on assets, return on investment, net income, Intermediates: available seat mile, revenue passenger mile, Site characteristics: fleet size, destinations, Intermediate: revenue ton kilometer /load factor, Bootstrapped DEA and truncated bootstrapped regression, Outputs: revenue per available seat mile, yield, load factor, Inputs: employees, number of airplanes, fuel (in metric tons), Outputs: revenue ton kilometer, revenue passenger kilometer, Inputs: employees, aircraft, cost per available seat kilometer, employee cost per available seat kilometer, available seat kilometer, delay, Outputs: aircraft per employee, passenger per employee, revenue passenger kilometer, load factor, passengers, operating revenue, destinations, Outputs: revenue passenger kilometer, revenue tonne kilometer, Inputs for 1st stage: cost per available seat mile (excluding fuel), employees, fuel cost per available seat mile, Intermediate: revenue passenger kilometer, Inputs for 2nd stage: weighted average cost of capital, short interest ratio, market capitalization, Outputs for 2nd stage: net income, capital gain yield, return of equity. 0000025441 00000 n x=mo8?>Hx(i7{k=,&Nfs] Small Community Air Service Development Program (SCASDP), Asst.

The U.S. airline industry has changed dramatically since the mega-mergers that occurred from 2008 to 2013.

For the third quarter of 2021, profits nearly tripled to $2.7 billion. They also found that low-cost carriers are more efficient than full-service network carriers because low-cost carriers were able to adapt more quickly to changes in market demand. /Info 425 0 R

In this study, CASM is used as the input in the first stage. These H outputs from the first stage, called intermediate measures, are used as the inputs in the second stage in producing the final outputs yrj, where r=1,2,,s, of the entire business activity.

Kao C, Hwang SN. Other metrics in addition to the quick ratio include the current ratio and the working capital ratio. 8600 Rockville Pike

Each DMU consumes different amounts of m inputs xij(i=1,2,,m) to produce different levels of s outputs yrj(r=1,2,,s). Since it is not uncommon to see inefficiency in the labor force when the business environment is highly regulated, how to improve labor efficiency, as measured by revenue generated per employee, becomes an immediate task with which carriers should contend. 0000024699 00000 n According to Liang et al. Dr. Huang received several grants for academic research and curriculum development.

Karakoc TH, Colpan CO, Altuntas O, Sohret Y. Kuljanin J, Kali M, Caggiani L, Ottomanelli M. A comparative efficiency and productivity analysis: implication to airlines located in Central and South-East Europe. (2008) to gauge the performance of major US airlines. A graphic presentation of comparative trends, on a carrier group basis, is made for several unit and overall financial indicators. There are 2000 bootstrap replications for each regression. Southwests' liquidity is similar to that of Delta's. startxref

In some instances, a metric in the individual carrier report will show a symbol. An evaluation of the worlds major airlines technical and environmental performance. Alternative ratios for evaluating long-term financial solvency include the total-debt-to-total-equity ratio and the total-debt-to-total-assets ratio. Regional flights stay local to one area, and cargo airlines transport goods, not passengers. Summary of the efficiency scores from the two-stage centralized DEA model, The carriers under full-service network (FSC) category are American Airlines (AA), Delta Air Lines (DL), United Airlines (UA), Alaska Airlines (AS), and Hawaiian Airlines (HA). Sustainable aviation: The need for a European environmental aviation charge. (2019). margin Moreover, reducing excess capacity in the near term is not an option as many passenger travels are booked months in advance.

/ID [ ] The efficiency score for the first stage, ESj1, and second stage, ESj2, can be written as, where vi, ur

Research Method and Data describes the data and the designs of empirical models. The average ROI from the sample airlines shows a downward trend. In a cross-country analysis, Yu et al.

Published by Elsevier B.V. 0000014408 00000 n What Is the Best Measure of a Company's Financial Health? In spite of operating at 30 to 40 percent load factor, cash burn in June stood at $18 million per day. stream Receive email updates about the latest in Safety, Innovation, and Infrastructure.

On the other hand, the empirical results show that the size of full-time employee equivalents exhibited a negative relationship to operating efficiency, indicating that high labor-related costs continue to hinder airlines ability to attain increased efficiency. Based in Warsaw, Poland and Milan, Italy. While a higher LF indicates better capacity utilization, a high LF does not imply better profitability.

It also encompasses Canadian transborder operations and Mexican transborder operations. According to Table Table4,4, the average stage length flown is statistically significant in both the operations and profitability stages.

Domestic service encompasses operations within and between the 50 states of the United States, the District of Columbia, the Commonwealth of Puerto Rico, and the U.S. Virgin Islands. The .gov means its official. We also reference original research from other reputable publishers where appropriate. Goodrich J. September 11, 2001 attack on America: a record of the immediate impacts and reactions in the USA travel and tourism industry. 0000025270 00000 n Huang CC, Hsu CC, Flouris T. Review of recent legacy airline mergers in the U.S.: an empirical study from investors perspectives. <<

In a book discussing the efficiency and competitiveness of international airlines, Heshmati and Kim (2016) concluded the following: (1) airlines efficiency was key to achieving profit maximization; (2) while airline size positively impacted output efficiency, larger airlines were less capable than smaller airlines in reaching better cost efficiency; (3) airlines demonstrated adequate productivity efficiency but were less successful in reaching cost efficiency; and (4) airlines needed to incorporate more cost savings initiatives to further strengthen their global competitiveness.

PMC legacy view She is the CEO of Xaris Financial Enterprises and a course facilitator for Cornell University. (2011), to ensure DEA models ability to differentiate efficiencies among the DMUs, the minimum sample size a study needs is at least twice the product of the number of outputs and number of inputs.

Therefore, the impact of fuel prices is universal, rather than a company-specific variable. FOIA World Air Transport Statistics, Plus Edition 2020 (Report #8288-64). The majority of studies on airline efficiency focus on airlines based in the U.S. and Europe.

0000001272 00000 n Vasigh B, Fleming K, Humphreys B. Please see the endnotes for a glossary of symbols. (2014) revealed that Asian-based airlines are more efficient than airlines based in Europe and America. Analysts use the quick ratio to measure an airlines short-term liquidity and cash flow. (2020).

%PDF-1.4 International Review of Financial Analysis. This study analyzed the recent operating and financial performance of nine U.S. airlines in 20152019. /OpenAction 426 0 R

/T 489755 Conclusion concludes the study.

American Airlines' revenue stood at $1.6 billion with a comparable operating loss to that of Delta's if we exclude the CARES act recognition and restructuring charges. A comparative study of airline efficiency in China and India: a dynamic network DEA approach. ?p+ e_#`%l/`%P' $XH6{FpB/xJM&"^&P3|iE02pd)dPlW]E4nLU_v/M9W@/.

Transport and Environment, European Federation for Transport and Environment, Brussels 98(1). International flights typically carry more than 130 passengers from one country to another. Our regression results also indicated that the size of airlines, approximated by total assets, promotes higher operating efficiency, indicating the importance of reaching economies of scale (Heshmati & Kim, 2016) and confirming the arguments that recent mergers have yielded a pro-competitive effect (Carlton et al., 2019). According to the International Air Transport Association (IATA), in 2019, the industry contributed $2.7 trillion in GDP and carried more than 4 billion passengers and 60 million cargo tons. <> The inclusion of this variable helps to identify how airlines route planning decisions, many of which are the results of the business model adopted, affect attainable efficiency.

However, traditional DEA models treat the production process as a single black box and cannot address the interactions between different production stages within a corporate entity.

Transportation Research Part d: Transport and Environment. Variables such as the average stage length flown, total assets, fleet size, and full-time employee equivalents were converted into their logarithmic transformations to rescale the data. The authors did not receive any funding for this study. The industrys high operating leverage makes its profits very sensitive to fluctuations in air-traffic demand.

Regarding the size of an air carrier, Merkert and Morrell (2012) supported the economies of scale argument but cautioned that when airlines seating capacity passes 200 billion available seat kilometers, it will be difficult for the company to operate efficiently. DEA is a nonparametric approach for calibrating the relative efficiency of an entity, called the decision-making unit (DMU), within a group of peer entities who utilize common inputs to produce common outputs. Lee BL, Worthington AC. Carriers can move between groupings (Majors and Nationals) based on the criteria listed below over time.

Our two-stage performance evaluation framework is illustrated in Fig.

Simar and Wilson (2007) pointed out that employing conventional truncated regressions to examine how exogenous variables affect the resulting non-parametric DMU scores is inadequate because of the serial correlation presented in the estimated DEA scores. You can learn more about the standards we follow in producing accurate, unbiased content in our. 0000003996 00000 n /Prev 489743 As the ultimate goal for corporate operations is to maximize shareholders wealth and room for further improvement in the operations stage is limited among carriers, our empirical findings disclose that companies may see more visible breakthroughs in the overall efficiency if attention is given to the profitability stage, where resource allocation becomes vital. Regarding airline performance assessment, Yu (2016) stated that there has been a shift in empirical modeling from index procedures and OLS estimations in the earlier years to DEA approaches in recent years. 0000026324 00000 n Certain data in this review are classified in two broad categories: namely Domestic and International services. :x6/#x!r.hgW&NWS1Ngb =rr=IX}ZGE5wu[BloY-7|ZO8f3e |vGSVLZG|F5:W-_w0 /~rA wvGGoH^)Z3O:;=89h;lnKj Wyw fWIO7vx/5f9 Cev},f'~_OWQ](=QZ4 She earned a Ph.D. in Financial Economics from The Graduate Center, The City University of New York. While demands for air travel and air freight services have been robust, the industrys profit margins remain thin and volatile due to its unique business characteristics.

Inglada V, Rey B. Spanish air travel and the September 11 terrorist attacks: a note.

The two aforementioned observations prompt the investigation in this study. Cargo, MRO, and loyalty have been less impacted, with revenues declining by 65%.

She holds a Bachelor of Science in Finance degree from Bridgewater State University and has worked on print content for business owners, national brands, and major publications. Some common trends have been visible across the airlines, yet each report included some interesting insights into how the airlines are dealing with the effects of the pandemic.

Before Both Domestic and International traffic and revenue fell sharply. An official website of the United States government Here's how you know. 0000002514 00000 n 1According to Sledsens (1998), sustainable aviation is defined as basic mobility to all citizens without damaging nature and the environment. Over the years, the industry has experienced cyclical financial performance, and more than 100 airlines have filed for bankruptcy since 1979 (Kumar, 2012). Sadi MA, Henderson JC. Careers. Barros CP, Couto E. Productivity analysis of European airlines, 20002011.


Therefore, the percentage of an airlines available seats that are filled by revenue passengers, known as LF, is the measure of capacity utilization. Return on Capital Employed (ROCE) is a financial ratio that measures a company's profitability and the efficiency with which its capital is employed.

Barros CP, Liang QB, Peypoch N. The technical efficiency of US Airlines. Investopedia does not include all offers available in the marketplace. These benefits are likely to allow Southwest to gain higher market shares than previously. Fuel hedging, operational hedging and risk exposureevidence from the global airline industry. That loss is the highest across all airlines, yet it is driven by non-cash writedowns of aircraft value and equity investments of $2.4 billion. Efficiency and competitiveness of international airlines. Data envelopment analysis: Theory, methodology, and applications. Nothing focuses the mind on productivity quite like the fear of liquidation: changes in airline productivity in the United States, 20002004. The traditional carriers had similar revenues, with an average of $1.5 billion. Passenger revenue declined by 87%, thanks to a relatively strong domestic revenue of $1 billion. >> While students of the airline industry are typically well versed in operational issues, cost and revenue measures, there is less knowledge of the financial position and condition of individual companies. In contrast, American Airlines, United Airlines, and JetBlue Airways were the three carriers with no occurrence of full efficiency in either the first or second stage. The full-service network carriers analyzed were American Airlines (AA), Delta Air Lines (DL), United Airlines (UA), Alaska Airlines (AS), and Hawaiian Airlines (HA); and the low-cost carriers were JetBlue Airways (B6), Southwest Airlines (WN), Spirit Airlines (NK), and Allegiant Air (G4). Tone K, Tsutsui M. Network DEA: a slacks-based measure approach. 4D9xvmOy7wn5v[xb~X? Even if half require a refund, and the cash burn remains unchanged, Delta will run out of liquidity in less than a year from now. All other operations are considered International services, which includeoperations in the Atlantic, Latin, and Pacific regions. This gives Southwest a significant advantage when it comes to obtaining more debt at a lower cost or increasing capital expenditure once the pandemic ends. 0000004168 00000 n (2008), constant returns to scale are assumed, and the overall centralized efficiency score is defined as the product of the efficiency score from stage one and the efficiency score from stage two.

Transportation Research Part e: Logistics and Transportation Review. =hBqdf?n&oDn8oh6%xi>TMvHx3z iCXtS#RukCJr5s2F+r~`!

Therefore, some airlines have abolished fuel hedging in recent years.

International Journal of Production Economics.

He has published research papers in many academic journals and well-acknowledged handbooks.

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