Economic Effects of Airline Deregulation

This literature review supports a study of the economic effects of airline deregulation in the United States. The general topic areas addressed in this literature review are (1) the economics of the airline industry, and (2) deregulation in the American economy.

The Economics of the Airline Industry

The Value Line Investors Service estimated at midyear 1991 that approximately 16 percent "of the domestic airline industry's capacity is in the hands of bankrupt carriers" (Collins, 1991b, 252). The service went on to add that some analysts think that "close to half of the total" industry capacity is in the hands of "airlines in serious financial straits" (Collins, 1991b, 252). Many of the highly leveraged airlines have lost enormous sums of money since the Mideast Crisis involving Iraq and Kuwait began in August 1990 (Collins, 1991b, p. 251).

Industry revenues have climbed steadily since 1987, from $25.4 billion in that year to an estimated $43.1 billion for all of 1991 (Collins, 1991b, p. 251). Even the load factor has risen from 58.1 percent to 60 percent since 1987. The industry's operating margin, however, has dropped dramatically from 12 percent in 1987 to an estimated sixpercent for all of 1991 (Collins, 1991b, p. 251). Steadily increasing fuel costs, personnel costs, and price discounting have eaten away at operational profits.

Through 1990, the airline industry as a whole remained pro

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p. 260). Overall, Delta remained profitable through 1990. For all of 1991, however, Delta posted a net loss of fourpercent (Sharav, 1991a, p. 260). Depreciation charges at Delta increased somewhat from $346.5 million in 1984 to $459.2 million in 1990, and $540 million for all of 1991 (Sharav, 1991a, p. 260). Delta's net profit margin in 1984 was 4.1 percent, and rose to 5.7 percent by 1989 (Sharav, 1991a, p. 260). Net profitability dropped to threepercent in 1990, and, the carrier posted a net loss of fourpercent for all of 1991 (Sharav, 1991a, p. 260). Delta is expected to post a net profit of 1.6 percent in 1992, and to increase net profitability to 2.5 percent by 1996 (Sharav, 1991a, p. 260). Delta's longterm debt in 1991 was 1.6 billion, or 0.7 times shareholder equity (Sharav, 1991a, p. 260).  Pan American achieved operating profitability in only five of the 12 (including 1991) postderegulation years (Collins, 1991d, p. 263). The last time the carrier posted an operating profit was in 1984fourpercent (Collins, 1991d, p. 263). Pan American never posted a postderegulation net profit (Collins, 1991d, p. 263). Pan American has now disappeared from the industry scene. Operating profitability reached a postd
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Approximate Word count = 2328
Approximate Pages = 9 (250 words per page)

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