The Information Content of Real Operating Performance Measures

Abstract

I use daily passenger flight delay data for all publicly held domestic US airlines from 1996 to 2016 to answer fundamental questions about the efficiency of market participants, accounting measures, and analysts in assessing the firm’s real operating performance. Airline performance is priced in the cross-section of cumulative market- and industry-adjusted returns, with significant drift. Quarterly aggregates of performance predict post-earnings announcement drift. The sensitivity of individual airline operations to those of the entire industry, measured using a beta approach, carries a negative premium consistent with systemic operating risk being a liability rather than a positively priced risk factor with implications for the accounting beta literature. Return on sales reflects the quarter’s real operating performance better than other common ROA measures, contributing to the measure selection literature.