A Longitudinal Analysis of Operating Profitability in the U.S. Airline Industry, 1988-2011
Posted: 20 Sep 2013 Last revised: 31 Jul 2014
Date Written: June 25, 2014
What is the impact of operational performance on profitability in the airline industry? We address this question in the context of the domestic U.S. airline industry from 1988 through 2011. The industry consists of (i) focused carriers that provide a limited set of service offerings for a particular market niche within North America, and (ii) legacy carriers who attempt to serve a wide variety of destinations (both continental and intercontinental) and customer segments. We compare and contrast the impact of five determinants of operating profitability – yield, load factor, equipment cost, labor cost, and fuel cost – for legacy carriers and focused carriers across two eras – pre 9/11 and post 9/11. Pre 9/11, focused and legacy carriers differed markedly in terms of managing the primary determinants. However, focused carriers have become more similar to legacy carriers post 9/11.
Keywords: operating profit; yield management; cost structure; productivity; focus; airlines
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