For many years, investors viewed the airline industry as being extremely risky. One of the biggest risks is high operating leverage. This refers to the fact that small changes in revenue for an airline tend to drive big changes in earnings.
One important way to mitigate the risk from operating leverage is to be conservative about financial leverage — or, to put it more simply, debt levels. A company with a strong balance sheet will have an easier time borrowing money in the event of an economic downturn than one that is already overloaded with debt.