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Berry, Steven, and
Panle Jia. 2010. "Tracing the Woes: An Empirical Analysis of the Airline Industry."
,
2(3): 1-43.
Show Article Details
DOI: 10.1257/mic.2.3.1
Abstract:The US airline industry went through tremendous turmoil in the early 2000s, with four major bankruptcies, two major mergers, and various changes in network structure. This paper presents a structural model of the industry, and estimates the impact of demand and supply changes on profitability. Compared with 1999, we find that, in 2006, air-travel demand was 8 percent more price sensitive, passengers displayed a stronger preference for nonstop flights, and changes in marginal cost significantly favored nonstop flights. Together with the expansion of low-cost carriers, they explain more than 80 percent of legacy carriers' variable profit reduction. (JEL L13, L25, L93)
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Authors:
Berry, Steven (Yale U)
Jia, Panle (MIT)
JEL Classifications:
L13: Oligopoly and Other Imperfect Markets
L25: Firm Performance: Size, Diversification, and Scope
L93: Air Transportation
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