Working Paper: NBER ID: w16744
Authors: Severin Borenstein
Abstract: U.S. airlines have lost nearly $60 billion (2009 dollars) in domestic markets since deregulation, most of it in the last decade. More than 30 years after domestic airline markets were deregulated, the dismal financial record is a puzzle that challenges the economics of deregulation. I examine some of the most common explanations among industry participants, analysts, and researchers -- including high taxes and fuel costs, weak demand, and competition from lower-cost airlines. Descriptive statistics suggest that high taxes have been at most a minor factor and fuel costs shocks played a role only in the last few years. Major drivers seem to be the severe demand downturn after 9/11 -- demand remained much weaker in 2009 than it was in 2000 -- and the large cost differential between legacy airlines and the low-cost carriers, which has persisted even as their price differentials have greatly declined.
Keywords: No keywords provided
JEL Codes: L1; L93
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| demand downturn post-9/11 (F44) | reduced revenues and increased losses (G33) |
| operational costs of legacy carriers (L93) | profitability of legacy airlines (L93) |
| competition from LCCs (D40) | financial difficulties for legacy carriers (L93) |