Friday, January 07, 2005

Financial Distress can reduce revenues. The USAIR case

In class discussions of financial distress all too often center on higher borowing costs. It is important to note that financial distress can also increase operating costs (who would want to work for a firm that may go out of business?), and reduce revenues.

From the Charlotte Observer:
Charlotte Observer 01/02/2005 An airline in critical condition:

"Nancy Holtzman, executive director of the Association of Corporate Travel Executives, says many corporate travel planners are worried about the airline folding. "The ongoing state of bankruptcy and the carrier's uncertain future would have any travel manager considering a back-up plan for travelers who rely on USAir's system," said Holtzman, whose association has 2,500 members. "Most of our members have already planned for that contingency.""
A perfect example of reduced revenues stemming from excessive leverage.

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