| High cost has often been identified as the exclusive reason for the struggling airline industry, yet little research has disentangled the many factors contributing to the airline's high costs. Guided by the capital structure theory, this quantitative, correlational study examined 6 key financial and operational variables and how they impacted airline profitability. Debt ratio, cost, revenue, and efficiency were the combined variables. Secondary data were obtained from the Airline Data Project of the Massachusetts Institute of Technology, consisting of Securities and Exchange Commission 10K filings and various schedules of the US Department of Transportation Form 41 covering the period 2000 - 2009. The top 10 U.S. airlines, ranked by total operating revenues, formed the sample (N = 100), which was further divided into 3 strata: network airlines, low cost carriers (LCCs), and regional airlines. Multiple regression was used to determine the relationships between operating profit margin (OPM) and the following predictor variables: debt ratio, available seat mile, cost per available seat mile, passenger revenue per available seat mile, passenger load factor, and revenue per employee. Debt ratio significantly explained operating profit margin, R2DRatio = .24, F(1, 95) = 29.63, p < .001. Model 2 with all 6 variables resulted in R2 System = .422, F(6, 90) = 10.96, p < .001, and Model 3 analyzing only the LCC stratum consisting of 3 airlines had 30 samples that resulted in R2LCC = .892, F(6, 23) = 31.62, p < .001. Debt ratio, introduced here for the first time, should be considered in all future airline finance research for its significant role in explaining profitability. This study further contributes to positive social change by informing airline executives of the success of the LCC business model in order to replenish and grow employment in the industry. |
