Affiliation:
1. Department of Economics, Yale University, 37 Hillhouse Ave., New Haven, CT 06520 and National Bureau of Economics.
2. Department of Economics, Massachusetts Institute of Technology, 77 Massachusetts Avenue, Cambridge, MA 02139 and National Bureau of Economics.
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 L13, L25, L93)
Publisher
American Economic Association
Subject
General Economics, Econometrics and Finance
Cited by
172 articles.
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