Tracing the Woes: An Empirical Analysis of the Airline Industry

American Economic Journal: Microeconomics 2 (August 2010): 1–43; DOI: 10.1257/mic.2.3.1

44 Pages Posted: 10 Jul 2019

See all articles by Steven Berry

Steven Berry

Yale University - Department of Economics; National Bureau of Economic Research (NBER); Yale University - Cowles Foundation

Panle Jia Barwick

Cornell University - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: August 1, 2010

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 Classification: L13, L25, L93

Suggested Citation

Berry, Steven T. and Barwick, Panle Jia, Tracing the Woes: An Empirical Analysis of the Airline Industry (August 1, 2010). American Economic Journal: Microeconomics 2 (August 2010): 1–43; DOI: 10.1257/mic.2.3.1. Available at SSRN: https://ssrn.com/abstract=3417225 or http://dx.doi.org/10.2139/ssrn.3417225

Steven T. Berry

Yale University - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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Yale University - Cowles Foundation

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Panle Jia Barwick (Contact Author)

Cornell University - Department of Economics ( email )

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United States

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