American Economic Review: Vol. 101 No. 3 (May 2011)


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Why Can't US Airlines Make Money?

Article Citation

Borenstein, Severin. 2011. "Why Can't US Airlines Make Money?" American Economic Review, 101(3): 233-37.

DOI: 10.1257/aer.101.3.233


US airlines have lost nearly $60 billion ($2009) in domestic markets since the 1978 deregulation, most of it in the last decade. The dismal financial record challenges the economics of deregulation. I examine some of the common explanations among industry participants and researchers—including high taxes and fuel costs, weak demand, and competition from lower-cost airlines. Major drivers seem to be the demand downturn after 9/11—demand remains much weaker today than in 2000—and the large cost differential between legacy and low-cost carriers, which has persisted even as the price differential between them has greatly declined.

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Borenstein, Severin (U CA, Berkeley)

JEL Classifications

D24: Production; Cost; Capital, Total Factor, and Multifactor Productivity; Capacity
L25: Firm Performance: Size, Diversification, and Scope
L51: Economics of Regulation
L93: Air Transportation
L98: Industry Studies: Utilities and Transportation: Government Policy

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