Airline profitability depends on airlines' cost competitiveness and their ability to price above costs. And the ability to set prices above cost depends on market power and the firm's ability to make use of innovative pricing techniques and market information. In the past, some carriers have been profitable without being cost competitive because they were able to charge exorbitant prices to consumers. Increased competition in the international air transport markets has put pressures on carriers' ability to raise prices. At the same time, input prices have been increasing continuously. To counter-act such trends, airlines have made tremendous efforts to improve efficiency and productivity in order to cut cost. Using a yearly panel of 22 major airlines over the 1986-95 period, this paper examines airlines' profitability changes by examining changes in productivity and their ability to price above cost. The study found that European and Asian carriers consistently improved productivity throughout the period even during the time of rising profitability, achieving higher productivity growth than North American carriers. However, European and Asian carriers experienced much faster decline in price recovery ability than North American carriers, because their input prices have increased rapidly and airfares have declined under the pressures of increased competition. Overall, airline profitability has improved during the 1990s.


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  • Accession Number: 00798285
  • Record Type: Publication
  • Files: TRIS
  • Created Date: Sep 19 2000 12:00AM