Analysis of financial risks of airline companies (Comparison of airline alliances and low cost airline companies)

As a result of the globalization and liberalization that took place in the eighties, the airline industry has also been greatly influenced by radical changes in economic policies. Competition has increased with the rise in the number of companies. In order to be protected from increasing competition at the international level and financial crisis, more than two thousand traditional airline companies (Full Service Carriers – FSC) come together to increase the efficiency of the system in line with common objectives and have established strategic alliances. After that same date, companies which adopted the Low Cost Carriers (LCC) business model as an alternative to FSC, were established and their share in competition increased. Fluctuations in financial markets with the 2008 financial crisis have increased the financial risks of airline companies and made it necessary to manage these risks. This study aims at a comparative analysis of the financial risks of the three major strategic alliance members and airline companies which adopted the LCC business model (with the help of fuzzy logic using the financial statements between 2010 and 2016). Financial ratios related to profitability comparison, capital structure - leverage and cash flow adequacy parts, which are prominent on key credit factors of Standard and Poor's rating agency, were used in determining financial risk. In order to be able to make comparisons based on nine financial rates, the study have been conducted on 52 companies, 34 of which are alliance members and 18 of which are low-cost airline companies. Analyses were performed using the fuzzy logic method through the MATLAB program. As a result of the analyses, it was determined that LCC companies are less risky and therefore more successful than alliances in all financial risk factors. This result is also observed with the tendency of the airline industry to the LCC model in recent years. Considering that the basic motivation of LCC companies is to reduce costs, security vulnerabilities can arise in order to save costs. However, member companies of alliance are accused of creating an unfair competition environment. At the end of the study, it was proposed to make arrangements for the base price policy and ticket prices, and to take measures at the highest level regarding airline flight safety. In addition, proposals have been made for tightening and supervising the rules of the alliance and agreements between airline companies to ensure that oligopolistic structures stemming from steps contrary to competition rules do not occur.