Corporate capital structure in turbulent times: a case study of the US airline industry

The paper examines airline performances focusing on the capital structure expressed as liabilities/assets ratio for current- and long-term liabilities. It is found that most airlines do not follow the traditional finance management practice of lowering liabilities during lean times and increasing them during economic upturns. Only Southwest Airlines illustrates finance management of this type, with positive effects on its performance. In addition, it is found that among all airlines, levels of current liabilities are properly adjusted for movements of interest rates. However, this practice is not extended to long-terms liabilities, where only Southwest manifested proper adjustments. Finally, return on assets has a negative influence on current liabilities for other airlines, suggesting a risky practice of increasing liabilities when asset profitability is reduced and symmetrically, not taking advantage of market opportunities by increasing liabilities when operations are profitable.