Working Paper: NBER ID: w13452
Authors: Severin Borenstein; Nancy L. Rose
Abstract: Following a brief review of the U.S. domestic airline industry under regulation (1938-1978), we study the changes that have occurred in pricing, service, and competition in the 28 years since deregulation. We then examine some of the major public policy issues facing the industry: (a) the sustainability of competition and volatility of airline profits, (b) possible market power of dominant airlines, and (c) congestion and investment shortfall in the airport and air traffic infrastructure.
Keywords: airline industry; deregulation; competition; pricing; service quality
JEL Codes: L1; L13; L51; L93
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Deregulation (L51) | Decrease in average ticket prices (D49) |
| Deregulation (L51) | Increase in number of passengers (L93) |
| Deregulation (L51) | Increased competition (L13) |
| Increased competition (L13) | Lower fares (R48) |
| Deregulation (L51) | Shift to hub-and-spoke networks (L93) |
| Increased concentration at hub airports (L93) | Market power for airlines (L93) |
| Increased operational efficiency (D61) | Lower costs per revenue passenger mile (L93) |
| Increased operational efficiency (D61) | Higher load factors (L90) |
| Higher load factors (L90) | Less comfort for passengers (L93) |
| Increased complexity of fare structures (R48) | Influenced pricing strategies (L11) |
| Introduction of loyalty programs (M31) | Influenced competition among airlines (L93) |