Persistent and transient inefficiencies in the U.S. airline industry

Fecri Karanki and Gudbrand Lien

Transport Policy, 2024, vol. 159, issue C, 254-265

Abstract: The competitive advantage of airlines depends on their technical efficiency. Efficiency analysis models now differentiate between persistent and transient inefficiencies. Persistent inefficiencies stem from fundamental flaws in production processes or ongoing managerial shortcomings, requiring long-term strategic interventions. Transient inefficiencies, however, result from irregular setbacks that can be swiftly addressed, causing temporary efficiency dips. Focusing on the decade from 2010 to 2019, we investigated how business models, mergers, and upgauging influence these inefficiencies. Our results reveal that 21.2% of the overall technical inefficiency can be accounted for by persistent inefficiency. Despite the U.S. airline industry improving transient inefficiency during the sample period, prevailing persistent inefficiency hindered any significant rise in overall efficiency. The research shows that full-service airlines (FSA) and low-cost carriers (LCC) often exhibit higher persistent and transient efficiency than ultra-low-cost carriers (ULCC). However, there seem to be no significant differences in transient and persistent inefficiency between FSA and LCC. Additionally, the results suggest that the upgauging and higher ramp-to-ramp hours may lead to higher transient efficiency. Finally, we could not find any influence of mergers and stage length on transient inefficiency.

Date: 2024
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DOI: 10.1016/j.tranpol.2024.10.018

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