The airline industry has significantly changed over the last few years of this century. The terrorist attacks of September 11, 2001, the attacks on Madrid and London, the Iraq conflict and the increase in fuel prices have resulted in losses for airline companies since 2001.
Some of them declared bankruptcy, like UAL corporation, the parent company of United
Airlines to face financial crisis. After implementing plans of restructuring to decrease costs,airline companies could renew growth and profitability in 2006, but within a context of intense competition between traditional and low-cost carriers. Southwest Airlines and United Airlines
are two main airline companies in the United States, and after those major events, it is interesting to analyze and interpret the financial accounts of both in order to understand how they managed the crises to achieve commercial success.
[...] For Southwest, it means that for every dollar of current liabilities there were $ 0.84 in 2006 and $ 0.9 in 2005 of easily convertible assets. This is an indication of the company's financial weakness because the figure is less than one. We also have to put nuances in the analysis of those ratios because the airline industry is a major financial industry and companies have huge amounts of debts and assets stemming from the aircraft and their linked loans. ASSETS PRODUCTIVITY: The assets turnover ratio calculates the total sales or revenue for every dollar of assets a company owns. [...]
[...] In 2006, the company had a positive stockholder's equity of $ 2,148 million, instead of the negative $ 25560 million in United Airlines ratios LIQUIDITY RATIOS: In the case of United, in 2006 and 2005, its short term debts exceeded its short term assets because the current ratio was less than one ( 0.79 in 2006 and 0.81 in 2005). But the current ratio was less than that of Southwest. If all creditors were paid, it would account for 79% of the assets, which could put the company in difficulty. [...]
[...] In Southwest case, we have $ 0.67 in 2006 and $ 0.54 in 2005 of sales generated for every dollar's worth of assets. Southwest is a low-margin company and a low-cost fare strategy, but it is surprising not to find a high asset turnover linked to their low-profit margin. The average collection period uses the average accounts receivable over the sales period. It must be compared to the competitors in order to see whether the customer risk, and the credit given, is in line with the industry. [...]
[...] United Airlines offers its services via jet aircraft, and smaller aircraft for its regional operations, which it calls United Express Selected Financial Data of United Airlines On a global scale, we can observe that, in this selective financial data was the first year, since 2002, which was profitable for the company. The main source of revenue for this airline company is obviously the passenger transport. United Airlines also carries cargo, but on a smaller scale compared to the passengers. The net income, which emerge from the growth of operating revenues and from the decrease of operating expenses, was small but still remained positive in 2006. [...]
[...] Conclusion The events of 2001 affected United Airlines and Southwest in different ways. Southwest mitigated the damages incurred thanks to its reactivity and low-cost services. On the other hand, United was forced to declare bankruptcy due to falling demand. The company was not equipped to cope with the decrease in demand as effectively as Southwest. At the end of our analysis of 2006 accounts, we can conclude that United, owing to its restructuring plan and fresh restart, slowly renewed efficiency and profitability is the first year, since 2001, to show positive accounts and, even a small profit margin. [...]
APA Style reference
For your bibliographyOnline reading
with our online readerContent validated
by our reading committee
