The Profitability Of The Airline Industry

1121 WordsFeb 28, 20175 Pages
In terms of liquidity Delta is not doing so well. Their current ratio has deteriorated consecutively the past four years and is the lowest in the past decade at .49. Delta’s Quick ratio of .35 reported in the last quarter is concerning considering anything below 1 may be an indicator of bankruptcy. Furthermore, their quick ratio has decreased by an annual average of about 5% in the past decade. (The quick ratio is particularly important in evaluating a company in the airline industry because they are capital intensive.) While the industry generally has lower quick ratios than others, Delta’s is significantly lower than the industry average reported in 2012 as 4.68. In terms of solvency, Delta has done very well. Except for the recession…show more content…
Delta’s ROA in 2015 and 2016 of 8.44% and 8.38% respectively were well above the industry averages of 5.4% and 5.1%. Delta’s key financial strategy is to maximize shareholder returns. They have been able to pay their shareholders by increasing their free cash flow by an average of 152% annually since 2010. Their free cash flow is much higher than the industry average and they have done so by limiting capital spending as much as possible by purchasing used aircrafts. Even though Delta is lagging in liquidity, their low current assets and quick ratio may be attributed to the low cost of their assets, which also happens to be part of their key strategy of maximizing shareholder wealth. This strategy has lead them to be the leader in the industry Strategic Objectives During Delta’s Annual Investor’s day in December of 2015, company President Ed Bastian stressed the importance of their investors. He said, “Much of what we want to do today is grow that confidence level in the marketplace and in the investor base, and continue to pursue higher returns for our owners.” He also emphasized the importance of long-term goals and not relying on short-term benefits, such as cheaper fuel prices. The chief human resources officer attributed their success to their employee culture and said that they “deliver results time and time again”. Bastian also spoke about the importance of international partnerships for long-term success, investment in technology, and offering
Open Document