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