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Profit Margins in U.S. Domestic Airline Routes

Author

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  • Hakan Yilmazkuday

    (Department of Economics, Florida International University)

Abstract

This paper estimates profit margins in the U.S. airline industry at the domestic route level. The dynamic estimation methodology used not only is robust to any simultaneity/endogeneity bias by construction but also results in profit margin estimates that are highly consistent with actual profit data from the U.S. airline industry. Estimated annual profit margins have an average of about 13.3%, with a range between 2.7% and 42.9% across routes. A cross-route analysis further suggests that annual profit margins increase with the market share of the largest airline serving the route, whereas they decrease with airfare. Important policy suggestions follow.

Suggested Citation

  • Hakan Yilmazkuday, 2021. "Profit Margins in U.S. Domestic Airline Routes," Working Papers 2125, Florida International University, Department of Economics.
    • Handle: RePEc:fiu:wpaper:2125
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    File URL: https://economics.fiu.edu/research/pdfs/2021_working_papers/21251.pdf
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    Cited by:

    1. Alonso, Juana M. & Socorro, M. Pilar, 2024. "Blind booking: The effects on passengers' purchase decision, airlines’ profitability, and tourist destinations," Research in Transportation Economics, Elsevier, vol. 105(C).

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    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • L93 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Air Transportation

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