Research at a Glance: Impacts of Productivity Changes on Profits, Prices, and Labor Compensation in Air Transportation: 1990-2001

Research at a Glance: Impacts of Productivity Changes on Profits, Prices, and Labor Compensation in Air Transportation: 1990-2001

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This research paper by Anthony D. Apostolides, Ph.D., examines the impact of productivity changes on industry profits, prices of air transportation for passengers and freight, and compensation for industry employees in air transportation during 1990–2001.

The analysis uses two productivity measures—labor productivity and multifactor productivity. Labor productivity is defined as output per unit of labor and is calculated by dividing output by a measure of labor used in the production of the output. Multifactor productivity relates to the productivity of all the inputs used in the production process – including labor, capital, land, and intermediate inputs. It is a more comprehensive measure of productivity.

Productivity increases should be expected, according to economic theory, to result in higher industry profits. A portion of those profits may benefi t passengers and air freight shippers in the form of lower prices, as well as benefitting industry employees in the form of higher labor compensation. In this regard, an analysis is initially carried out between productivity measures and industry profits. Comparisons are also made between the general price level of the economy and the price indexes of the passenger and cargo air transportation subsectors. Finally, an evaluation is conducted of labor compensation in air transportation, other transportation industries, and the U.S. economy.

Key Findings From Research and Analysis

There is an association between increases in labor and multifactor productivity changes in air transportation and industry profits because productivity increases, over the analysis period, tended to be accompanied by increased industry profits.

It appears that consumers of scheduled air passenger services did not obtain the benefit of productivity increases in the form of lower prices. Prices for consumers/passengers continued to increase relatively rapidly over time.

Commercial users of scheduled air cargo services obtained a portion of the benefit from increased productivity as cargo prices increased relatively slowly or declined.

Prices for domestic air travel increased considerably faster over the period of analysis than prices of international air travel.

Part of the benefit of the productivity increase in air transportation went to the air carrier employees in the form of higher labor compensation.

Productivity and Profits in Air Transportation, 1993–2001

Year Labor productivity Multifactor productivity Net income ($millions, all carriers) Net income ($millions, major carriers)
1993 109.3 100.4 $272 N/A
1994 117.2 106.9 ($344) ($578)
1995 123.0 111.2 $2,340 $2,235
1996 127.5 115.4 $2,804 $2,779
1997 129.0 116.7 $5,168 $5,488
1998 125.9 115.5 $4,531 $4,577
1999 126.7 117.6 $5,357 $5,075
2000 126.7 121.1 $2,533 $2,599
2001 118.6 116.1 ($8,171) ($7,139)

NOTES: Numbers in parentheses (in columns 3 and 4) indicate losses.

N/A = not available.

SOURCES: For data in columns 1 and 2, Bureau of Labor Statistics website, www.bls.gov, section on Productivity, subsection on Productivity and Costs. For data in column 3, from BTS TranStats website, www. transtats.bts.gov; data refer to all air carriers. For data in column 4, from DOT, Airline Quarterly Financial Review; data refer to Majors.

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