Macroeconomic Determinants of Financial Failure Risk in Airlines

Abstract

Due to many crises throughout history, the airline industry has been vulnerable to financial disasters. The 1978 oil crisis led to an increase in fuel prices and financial concerns. The terrorist attack in 2001 and the subsequent global economic crisis in 2008 caused significant losses to the aviation industry. In times of crisis, airlines must take precautions against financial failure. The objective of this study is to identify the macroeconomic factors that influence the risk of financial failure in the aviation industry. This study focuses on how macroeconomic issues affect traditional airlines’ ability to make money. Within the parameters of the study, a sample of 11 conventional airline firms operating between 2009 and 2019 was analyzed to determine the factors influencing the likelihood of financial failure. The cost of fuel, interest rates, inflation rates, and currency rates were utilized as macroeconomic variables that could have an impact on airline enterprises' ability to meet ends. The Altman "Z" score was used to identify financial failure. According to the findings of the random effects panel data study, exchange rates and interest rates have a negative impact on financial failure. The results of the changes in interest and exchange rates suggest that governments and airlines should concentrate on policies that will strengthen the aviation sector’s financial viability. To manage these risks more effectively, financial managers must closely examine the effects of rising macroeconomic risk and the corresponding financial failure effects.