COVID-19's Effect on the Technical Efficiency and Productivity of US Airlines: An Industry Sectoral Analysis

Abstract

This study investigates the influence of COVID-19 on technical efficiency and Malmquist productivity for combo carriers, cargo-only carriers, and passenger-only carriers for the sample period 2006–2021. We employ the DEA model to derive rankings of relative technical efficiencies annually for each company type. The technical efficiency performance measure is then regressed on standard cost determinants and (company-type)-(COVID-19) interaction variables to further examine COVID-19's influence on efficiency performance by company type. Then, we use the technical efficiency rankings to derive Malmquist productivity measures for all three types of airline companies. We hypothesize that cargo-only companies were better suited to operate during the pandemic because initially compared to combo-carriers and passenger-only carriers, these cargo-only companies operated with greater capacity due to higher shipper demand. In support of this study's hypothesis, findings show (1) combo carriers and passenger-only carriers experienced a significant technical efficiency erosion during the early stages of COVID-19. In contrast, cargo-only carriers did not experience an erosion of technical efficiency. We attribute this technical efficiency difference arising because cargo companies were able to continue operating at capacity during COVID-19. (2) These technical efficiency results contributed to declining productivity for combo and passenger carriers during the first year of COVID-19. Nonetheless, these companies were able to maintain relatively high levels of technological change.

Citation

Laulederkind, Z. and Peoples, J. (2024), "COVID-19's Effect on the Technical Efficiency and Productivity of US Airlines: An Industry Sectoral Analysis", McCarthy, P.S. (Ed.) Airlines and the COVID-19 Pandemic (Advances in Airline Economics, Vol. 11), Emerald Publishing Limited, Leeds, pp. 247-281. https://doi.org/10.1108/S2212-160920240000011010