chapter  6
43 Pages

Financial performance and measurement

Despite the heavy losses that the industry endured throughout the 2008-09 global financial crisis and subsequent economic recession, a combination of the ensuing economic recovery, consolidation, and reductions in capacity has enabled most carriers globally to start looking toward future strategies instead of only focusing on ways in which to cut costs. Consolidation among US airlines in particular has reduced competitive pressures and led to significantly increased profits. Less capacity allows airlines to increase prices, following the basic economic principle that prices will increase if supply is reduced and demand remains constant. Recovery has been slower in other markets, but nevertheless the International Air Transport Association (IATA) raised its 2013 net profit forecast for the world’s airlines by almost US$1 billion to $8.4 billion. Although the extreme pressures of the recession have been alleviated, it is still important for shareholders and outside investors to measure an airline’s potential adequately, and this can be done most accurately by means of an inspection of its financial statements.