Earning power and financial health in the airline industry-a preliminary investigation of U.S. and non-U.S. airlines

The increased competition, rising costs, and the constant technological innovations in the airline industry, pose a challenge to airline companies around the globe. Although such a challenge impacts the earning power and financial health of companies in any industry, its effects are particularly felt in the airline industry. This study investigates and compares the earning power and financial health of U.S. and non-U.S. airline companies, and whether there exists any relationships between measures of profitability, short-term liquidity, long-term solvency, and earning power. Finding measures that make the differences in earning power and financial health may explain what distinguishes U.S. from non-U.S. airline companies. In order to explore potential relationships and differences, associational in ferential statistics are used to analyze airline financial data for a period of ten years (1998 to 2008). It was found that the financial health of airlines affects earning power in general. Specifically, this study found that net profit margin, total asset turnover, return on investment, and long-term debt to equity are statistically significant with respect to earning power in the airline industry. Moreover, this paper shows that the earning power of U.S. airlines is different from the earning power of European and other airlines.