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Economic Effects of Airline Deregulation

Industry net profit of $696.9 million in 1987,

however, dropped 44.8 percent to $383.9 million by 1990 (Collins, 1991b, p. 252). At the same time that increasing operating costs and price discounting was eroding operational profitability, depreciation on the new aircraft ordered by the airlines was increasing enormously (Standard & Poor's, 1991, p. A1. Industry depreciation in 1987 was $1.5 billion, while depreciation for all of 1991 was $2.5 billion (Collins, 1991b, p. 252). Increased depreciation charges will push the industry as a whole into a negative profitability situation for all of 1991, as the estimated industry net loss for the year is $270 million (Collins, 1991b, p. 252). The industry net profit margin in 1987 was 4.4 percent, while the net loss in 1991 is projected at 0.6 percent. The industry is projected to return to marginal profitability (twopercent net profit) in 1992, and to increase its net profit margin to 3.5 percent by 1996 (Collins, 1991b, p. 252). Total longterm debt in the airline industry in 1991 is $10.8 billion, or 0.9 times shareholder equity (Collins, 1991b, p. 252).

The plight of many individual carriers is much worse than the average conditions for the industry. This point may be illustrated through an examination of profitability at six of the nation's major trunk carriers in 1991American Airlines (the largest American carrier), Continental Airlines (the fourth largest American carrier), Delta Airlines (the third large

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Economic Effects of Airline Deregulation. (2000, January 01). In LotsofEssays.com. Retrieved 06:13, October 25, 2014, from http://www.collegetermpapers.com/viewpaper/1691404.html
 
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