Airline Bankruptcy: The Determining Factors Leading to an Airlineu27s Decline

摘要

The purpose of this study was to determine what the critical factors are to an airline’s financial turmoil, leading ultimately to a bankruptcy filing. Over the past decade, the airline industries’ performance has been dismal, leading to 20 bankruptcy filings. As competition increases, it is crucial for airlines to know which core business areas are essential to success. This paper identifies 8 specific industry metrics that are used to compare airlines, revealing where certain airlines falter and others shine. Some of these metrics are later applied to a case study examining Trans World Airlines (TWA) and American Airlines (AA), highlighting the factors leading to TWA’s bankruptcy filing during the same time period American Airlines remained profitable. The results show that the labor inefficiency, operating inefficiencies, unsuccessful fuel hedging programs, and high long-term debt are critical factors leading to an airlines bankruptcy. Four recommendations for airlines are provided, namely: 1.) The cross-utilization of employees, 2.) Maintain Cost Discipline, 3.) Focus on Breakeven Load Factor, and 4.) Do not neglect the intangibles such as brand reputation.