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Modelling Risk in the Airline Industry: A Bankruptcy Prediction Approach
Abstract
This research is devoted to the development of approaches to assess the possibility of bankruptcy based on a sample of European airline companies. This issue of bankruptcy has become very problematic since the several recent financial crises when airlines all over the world have gone through hard times and dozens of them needed to file for bankruptcy and receive financial aids from the governments, or find their salvation in mergers or acquisitions with greater players in the market with the support of the governments. Since the beginning of the pandemic, airline companies worldwide have faced many more serious problems, which forced them to stop most of their passenger flights because of the restrictions directed at the reduction of the incidence. Unlike other financial crises, the pandemic has the most severe uncertainty problem, because it is difficult to predict how the virus will behave and when it will stop.
This research is directed toward the development of approaches that can help identify and predict the possible bankruptcy of airlines and the setting of the normative values of the significant indicators for this industry in Europe.
Implications for Central European Audiences: The goal of the current research is to develop approaches and, in particular, bankruptcy prediction models for airline companies. The sample consists of the great players of European countries, whose distress can lead to economic problems. The originality of this research is that the existing models usually have a global character and do not consider the features of the airline industry. Although it is very important nowadays, as in a pandemic, it is one of the most affected industries and thus cannot be assessed along with other industries. Moreover, it is important to note that there are a few models for predicting airlines’ bankruptcy, but they were developed more than 8-10 years ago, so they lost their actuality. This research will be devoted to airlines from Europe, as many economists have revealed that regional factors influence bankruptcy prediction models; however, this hypothesis will be tested in future investigations.