A comparative analysis of cost change for low-cost, full-service, and other carriers in the US airline industry

This study compares cost and productivity changes of full-service carriers (FSCs), low-cost carriers (LCCs) and 'other' carriers classified as regional or charter firms. Findings show cost reductions of 10 percent for FSCs and 22 percent for regionals/charters, and cost increases of 8.5 percent for LCCs from 1993 to 2014. Nontrivial productivity gains due to increases in load factor and stage length explain the findings for FSCs. Unexplained technical change accounts for the cost increases for LCCs, while productivity gains due to increases in load factor and stage length and unexplained technical change contribute to cost declines for 'other' carriers. These findings are interpreted as indicating (1) the LCC cost advantage over FSCs has eroded somewhat over this period, and (2) sources of cost changes over this period differ by air carrier classification.