MIND THE GAAP: DETERMINANTS OF U.S. AIRLINE OPERATING CASH FLOWS

Abstract

ABSTRACT The airline industry in the United States relies heavily on strong liquidity and solvency positions to fund an array of short and long-term variable and fixed costs ranging from cabin crew salaries to aircraft lease payments and debt service. Against the backdrop of these ongoing needs for cash is the ever-present risk of extraneous and expeditious demand shocks such as pandemics, terrorist incidents, and surging fuel costs. It is thus an imperative that airlines monitor their operating cash flows closely, especially when considering that many financial performance metrics are accrual-based and do not always paint a completely accurate picture of a firm’s true cash position. This study hypothesized and investigated significant determinants of operating cash flows for publicly-traded US airlines and found a statistically significant relationship between airlines operating cash flows and their total assets, income from operations, and market capitalization; which account for a large proportion of the variance in operating cash flows. This study is imperative to helping airlines understand the major determinants of operating cash flows as they look to recover from the pandemic and increase cash flow as well as maintain robust liquidity and solvency positions to fund an array of variable and fixed costs. Keywords Airlines, Operating Cash Flows, Accruals, Pandemic, Liquidity, Solvency