Flying high or falling short? markup and product differentiation in the U.S. airline industry (2002–2022)

Abstract

The U.S. airline industry experienced dramatic financial performance swings over the past two decades, moving from $31 billion in operating losses (2002–2009) to $163 billion in operating profits (2010–2019), followed by steep losses and a timid recovery during the pandemic (2020–2022). Building on the work of C.A.K. Lovell, this paper introduces a novel framework for decomposing annual markup changes over this period. A key contribution is the inclusion of product differentiation as an economic driver—an often-overlooked factor in traditional financial performance analyses. Using this methodology, we analyze profitability changes across 20 U.S. airlines from 2002 to 2022, offering new insights into the drivers of both industry-wide and firm-level performance dynamics.