Tracing the Woes: An Empirical Analysis of the Airline Industry,
NBER Working Paper No. 14503 The U.S. airline industry went through tremendous turmoil in the early 2000's. There were four major bankruptcies and two major mergers, with all legacy carriers reporting a large profit reduction. This paper presents a structural model of the airline industry, and estimates the impact of demand and supply changes on profitability. We find that, compared with the late 1990s, in 2006, a) air-travel demand was 8% more price sensitive; b) passengers displayed a strong preference for direct flights, and the connection semi-elasticity was 17% higher; c) the changes of marginal cost significantly favored direct flights. These findings are present in all the specifications we estimated. Together with the expansion of low cost carriers, they explained more than 80% of the decrease in legacy carriers' variable profits. This paper is available as PDF (460 K) or via emailA non-technical summary of this paper is available in the March 2009 NBER Digest.
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Machine-readable bibliographic record - MARC, RIS, BibTeX Document Object Identifier (DOI): 10.3386/w14503 Published: Steven Berry & Panle Jia, 2010.
"Tracing the Woes: An Empirical Analysis of the Airline Industry,"
American Economic Journal: Microeconomics,
American Economic Association, vol. 2(3), pages 1-43, August.
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