Market Regulation & Profitability

Abstract

The process of globalisation has been a widely discussed topic over the past two decades, and a great enabler and driving force behind this process has been the airline industry. In addition, deregulation is said to have a great impact on company performance and profitability, and is often associated with being a direct consequence of globalisation. This paper examines the US and the EU airline industry with the intent to test the consequences of deregulation. We document that the two regions deregulated their respective markets differently in time; the US deregulated in 1979 and the EU gradually from 1985 to 1997. We test the two markets concerning profit margin, before and after the final EU deregulation in 1997. The evidence indicates that US airlines have a higher profit margin than their European counterparts, both before and after the EU deregulation. In addition, we find no indication that the EU airlines improved in profitability after the final deregulation. Finally, we find that different variables affect profit margin differently in the two markets.