The Effect of Leverage on Airlines Profitability; the case of some selected African Airlines
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Date
2024-01-03
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A.A.U
Abstract
The study's goal was to find out how leverage affected the profitability of a few African airlines.
Thus, using the EVIEWS 10 software program, secondary data from the audited annual reports of
eight airlines that were purposefully chosen for the 2010–2020 time frame were examined using a
fixed effect panel regression model. The research design and approach used in the study were
explanatory and quantitative, respectively. To isolate the effect of leverage on airlines' profitability
and to capture the influence of variables other than the study's primary objective variables (degree
of operating and financial leverage), the effect of both operating and financial leverage on airlines'
profitability (ROA) was examined by introducing control variables (operating efficiency, airline
size, and exchange rate). The degree of operating leverage used by airlines has a positive and
statistically significant impact on profitability (ROA), according to the results of the fixed effect
regression model. Conversely, certain airlines' profitability (ROA) is negatively and significantly
impacted by their level of financial leverage, operating efficiency, size, and exchange rate.
Considering the findings, airlines are recommended to update their capital structure and
operating costs by increasing the amount of operating leverage (using fixed operating costs),
which maximizes their profitability, and optimize debt financing to levels that are easily
manageable.