Productivity? of US Airlines After Deregulation

We analyse a sample of airline firms most recently examined by Alam and Sickles (2000) and extended by Good, Sickles and Weiher (2005) to include an index of circuity as one of our measures of service quality of airline travel. An additional measure of quality of airline travel is timeliness and is measured by FAA data on the percentage of flights that arrived on time. The two traditional outputs are scheduled and non-scheduled revenue passenger miles. We find that accounting for characteristics such as circuity and percentage of flights arriving on time does affect productivity. Our findings confirm anecdotal accounts of a decline in airline service quality since deregulation, yielding in general lower rates of productivity growth in our sample when quality variables such as indirect routeing and delays are explicitly introduced into the technology. Our findings also point out the power of index number techniques to account for service quality changes and could serve a similar function in analysing post-deregulatory dynamics in other industries such as telecommunications, electric power, distribution and financial services. © 2007 LSE and the University of Bath