Thursday, February 3, 2011
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.
Mother Nature's winter storm assault on the Midwest is exacting a heavy toll from the airline industry. See Mike Estrel, Weather Whacks Airlines' Revenues, Wall St. J., Feb. 2, 2011 (available here). The final damage may not be known for weeks, but needless to say it will not be pretty. As the story discusses, the airlines are already battling rising fuel costs as they struggle to return to consistent profitability after the skid which began in 2007.