Analysis of Effects of Financial Factors on Profitability of Low-Cost and Legacy Carriers

Since airline deregulation in 1978, there have been over 180 bankruptcy filings by airlines. Legacy and Low-Cost carriers are unique in how they operate and how they generate revenue; both business models have advantages and disadvantages. However, the Low-Cost carriers have shown increases in revenue and have been growing at increasing rates over the Legacy carriers. This study analyzed financial factors from four airlines in each business model to reveal which financial factors can help determine profitability of an airline. This researcher found significant differences between Legacy and Low-Cost Passenger Revenues, Maintenance Expenses, and Depreciation and Amortization Expenses. Additionally, there were significant positive relationships between Low-Cost Cargo Revenue, Maintenance Expenses, and Depreciation and Amortization Expenses and their profit margin, showing that newer aircraft affect company success. Legacy Labor Expense had a significant negative relationship with profit margin, evidence that high wages and pensions reduce profitability