Productivity of airline carriers and its relation to deregulation, privatisation and membership in strategic alliances

This study looks at how deregulation, privatisation and the formation of strategic alliances have affected the productivity of international airlines. We evaluate all three factors simultaneously and disaggregate the carriers’ operations into production and sales and allow for unobserved firm-level heterogeneity through random parameters. Estimations of stochastic frontier models reveal that on the aggregate level, deregulation increases productivity, membership in alliances has an ambiguous effect and state ownership has no significant effect. Disaggregating the carriers’ operations confirms the productivity gains from deregulation, and that state ownership and alliances have contradictory effects.

Research highlights
► Evaluates how deregulation, privatisation and formation of strategic alliances have affected the productivity of international airlines.
► Uses stochastic frontier models and 14 years of data from 41 airline carriers.
► Deregulation has increased productivity.
► State ownership and membership in alliances have contradictory effects on the sales and production processes.