Thursday, February 3, 2011

On U.S. Airlines' Financial Woes

Severin Borenstein has a fascinating new paper available, On The Persistent Financial Losses of U.S. Airlines: A Preliminary Exploration (NBER Working Paper No. 16744, Jan. 2011) (available here).  From the 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.

http://lawprofessors.typepad.com/aviation/2011/02/on-us-airlines-financial-woes.html

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