Three essays on competition and productivity in the U.S. airline industry.

摘要

Chapter 1: The Effect of Wright Amendment on Consumer Welfare This paper analyses effect of the Wright Amendment on airline ticket price and ultimately consumer welfare for passengers flying to and from the Dallas metropolitan area. The Wright Amendment is a law that was implemented in 1979 to restrict passenger air travel to and from Dallas Love Field airport in order to encourage growth at then the newly constructed Dallas Fort-Worth airport. Today, Dallas Fort-Worth has become one of the busiest airports in the U.S., but the Wright Amendment continues to suppress competition by prohibiting long distance flights to and from Dallas Love Field airport. While supporters and opponents of the Wright Amendment have been debating for some time, to date no economic study has measured the effect of the law on air fares and consumer welfare. I use data from the U.S. Department of Transportation's Ticket and Origin and Destination Survey from 1996 to 2011 to produce estimations of the effect of the Wright Amendment. Series of three relaxations to the amendment created an opportunity to use the difference-in-difference econometric method to precisely measure the fare distortion brought by the law. Of the three relaxations, the third and the last change introduced a major alteration in the law by allowing airlines to fly anywhere in the country from Dallas Love Field airport. As a result, fares decreased on average by 13.88% while certain destinations experienced as much as 36% of fare decrease during the five years following the implementation of the change. Consequently, passengers of the Dallas area saved ;Chapter 2: The Effect of Bankruptcy on Productivity in the Airline Industry This study tracks major airlines in the U.S. during the past 20 years to determine whether bankruptcies of the biggest airlines affect their productivity under financial stress. The U.S. airline industry has seen an incredible amount of volatility ever since the deregulation of 1978 with every major carrier declaring bankruptcy at least once. Business cycles surely affect airlines' health, but not evenly. During economic expansionary periods industry profits can be modest, but during recessions the biggest airlines start declaring bankruptcies one after another. Yet after so many bankruptcies, the industry still remains very vulnerable. In common practice, Chapter 7 bankruptcy declaration is a way for an organization to reorganize and is a golden opportunity to improve by getting rid of its inefficiency. However, to date there has been no previous study in the airline industry looking into the relationship between bankruptcy and productivity. Using data of the 14 biggest airlines in the U.S., I empirically explore how bankruptcy affects productivity. Both partial and total factor productivity methods were used to provide a detailed presentation of the evolution of airline productivity. I find that bankruptcy does not have any impact on productivity as some of the major airlines declare bankruptcy multiple times indicating lack of improvement in employee and aircraft productivity. The results were consistent under different variations of post-bankruptcy periods where short term and long term effects were tested.;Chapter 3: The Effect of Mergers on Productivity in the Airline Industry In this study, I examine the effect of mergers in the U.S. airline industry on productivity. Chapter 7 bankruptcies and mergers are the two major types of strategies a vulnerable airline can pursue in order to secure its survival in its immediate future. A merger deal can offer several major benefits including increased market power, availability of new financing source by merging with a healthier airline, reduced cost and improved productivity through synergy. Airlines highlight cost savings and improved efficiency as their primary merger motivations. Yet, to date no study exists has examined the relationship between merger and productivity in the airline industry. Similar to bankruptcies mergers can offer short term survival solutions, but long term viability comes from improvements in productivity. I use data of the 14 biggest airlines in U.S. during the past 20 years to track productivity of airlines going through mergers. For the 14 airlines, I construct partial and total factor productivity in order to estimate merger effects. Using the available data, I identify three mergers where is there is sufficient ex-ante and ex-post data exist. Using the difference-in-difference econometric technique, I find that mergers do improve productivity as promised by the airlines. However, the extent of improvements depended on whether the acquiring airline was more productive than the target airlines prior to the merger. The results were consistent with previous findings of studies on mergers and productivity outside the airline industry.