A financial history and analysis of the United States airline industry

This dissertation analyzes the financial history of the U.S. airline industry from the perspectives of earnings, dividends, risk and capital structure. The airline industry is chosen because of its transition from economic regulation to competition. Within the area of earnings, I examine the impact of deregulation on the mean-reversion behavior of earnings documented by Fama and French (2000). Next, I examine the impact of dividends on the variation of carriers' stock returns. Then, I extend this relation by examining the impact of specific industry characteristics, deregulation, air crashes and the events of 9/11, on both the total and market risk of the industry's stock returns. I also examine the effect of inflation on shareholder returns using the consumer price index as a proxy. I then examine the effect of deregulation and stock returns on debt ratio behavior. Finally, I examine the relation between operating leases and operating performance.; My results suggest that deregulation has affected the magnitude and variation of earnings, but not on the mean-reversion behavior. I also find that stock return volatility appears to increase industry-wide following air crashes, that deregulation appears to increase the industry's total stock return risk and that 9/11 appears to have increased both the total and systematic risk of the industry. Additionally, in the presence of these risks, there does not appear to be a relation between dividends and stock return volatility. Further, there appears to be a negative relation between industry returns and the consumer price index that is robust to lagged stock returns. Within the area of capital structure, I find that the recently documented relation between stock returns and debt ratio behavior is not impacted by deregulation. Finally, although my results are mixed, I generally find a negative relation between the use of operating leases and profitability.