An Evaluation of the Operational Performance and Profitability of the U.S. Airlines

Abstract

Since 2008, a series of mega-mergers has dramatically changed the U.S. airline industry. Despite the presence of fewer airlines in the market, the competition remains intense, which forces airlines to continually search for ways to increase their efficiency to maintain survival and financial sustainability. To evaluate airline performance and disentangle the causes of inefficiency, this paper applied a two-stage network data envelopment analysis approach and a truncated regression to investigate the performance of nine U.S.-based airlines from 2015 to 2019. Our empirical results reveal that during the sample period, airlines’ operating efficiency steadily improved, but the efficiency in the profitability stage stagnated. Therefore, strategic resource allocations are needed for airlines to see further advances in their overall efficiency. On average, airlines operating in the low-cost business model yielded higher efficiency scores than their peers operating in the full-service framework. While an airline’s size, measured in terms of total assets, has a positive influence on operating efficiency, a larger number of full-time employee equivalents hinders efficiency outcomes, which indicates the importance of enhancing labor efficiency among carriers.