Pre- and post-deregulation financial performance and efficiency in US Airlines

Abstract

The productivity of the airline industry has increased over time after deregulation. Longer flights, higher aircraft utilization rates, along with more fuel efficient aircraft, and operational plans designed to economize fuel are major reasons to expect better productivity performance in the airline industry. This achievement cannot be realized unless technological changes in the aircraft manufacturing and in the management practices of airline companies take place. The productivity performance of airlines should also be reflected in stock market prices and (nonnegatively) in returns for companies providing the airlines with equipment and other services. We investigate the effects of more appropriate technology and their equity market impacts for major commercial airlines. We examine the distributions of returns before, during and after deregulation to see whether deregulation has increased or decreased risk. We also examine the relationships between stock returns and prices, and data envelopment analysis (DEA) and total factor productivity (TFP) measures of efficiency. This information about expected stock market effects of deregulation and efficiency can clarify the choices faced by managers of technological change and by policymakers.