Internet Penetration and Capacity Utilization in the US Airline Industry
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Date: 03-18-2008
Start Time:
1:00pm
End Time: 2:00pm
Speaker: James Dana, Northeastern University
Location: Uris 333
ABSTRACT
Airline capacity utilization, or load factors, increased dramatically between 1993 and 2007, after staying fairly level for the first 15 years following deregulation. Improvements in demand forecasting, capacity management, and revenue management are potential explanations, but revenue management systems were widely adopted in the 1980's, significantly before the increase in load factor. We argue that consumers’ adoption of the Internet, and their use of the Internet to investigate and purchase airline tickets, explains recent increases in airlines' load factors.
Using metropolitan area measures of Internet penetration, we find strong evidence that differences in the rate of change of Internet penetration explain differences in the rate of change of airline airport-pair load factors. We argue that these increases, and a significant part of the associated $1 billion reduction in airlines' annual costs, represent a previously unmeasured social welfare benefit of the Internet.
This is joint work with Eugene Orlov of Lexecon.
BIO
James Dana is Professor of Economics and Business at Northeastern University. He is a leading researcher in theoretical industrial organization, competitive strategy, and operations management, with emphasis on pricing under uncertainty, corporate strategies for managing demand uncertainty, and revenue management. Prior to joining the faculty at Northeastern, Professor Dana was Associate Professor with Tenure at the Kellogg School of Management, Northwestern University. Professor Dana holds a BA in Economics from Yale University and a Ph.D. in Economics from the Massachusetts Institute of Technology.