TY  - JOUR
AU  - Berry,Steven
AU  - Jia,Panle
TI  - Tracing the Woes: An Empirical Analysis of the Airline Industry
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 14503
PY  - 2008
Y2  - November 2008
UR  - http://www.nber.org/papers/w14503
L1  - http://www.nber.org/papers/w14503.pdf
N1  - Author contact info:
Steven T. Berry
Yale University Department of Economics
Box 208264
37 Hillhouse Avenue
New Haven, CT 06520-8264
Tel: 203/432-3556
Fax: 203/432-6323
E-Mail: steven.berry@yale.edu

Panle Jia Barwick
MIT Department of Economics
E52-243C
50 Memorial Drive
Cambridge, MA 02142-1347
Tel: 617/253-7229
Fax: 617/253-1330
E-Mail: pjia@mit.edu
M2  - featured in NBER digest on 2009-03-01
AB  - The U.S. airline industry went through tremendous turmoil in the early 2000's. There were four major bankruptcies and two major mergers, with all legacy carriers reporting a large profit reduction. This paper presents a structural model of the airline industry, and estimates the impact of demand and supply changes on profitability. We find that, compared with the late 1990s, in 2006, a) air-travel demand was 8% more price sensitive; b) passengers displayed a strong preference for direct flights, and the connection semi-elasticity was 17% higher; c) the changes of marginal cost significantly favored direct flights. These findings are present in all the specifications we estimated. Together with the expansion of low cost carriers, they explained more than 80% of the decrease in legacy carriers' variable profits.
ER  -