Linking service structural design to service profitability: a U.S. airline industry study

Abstract

This paper estimates the empirical link between five structural service design choices and service profitability in the context of the U.S. domestic airline industry. The study is based on panel data of 12.35 million flight records from nine domestic carriers between 2004 and 2007. The flight records were accessed from a database maintained by the U.S. Department of Transportation. The results of a fixed effects panel regression model provide evidence that the structural design choices of the (1) complexity of the aircraft fleet deployed, (2) operations scale, and (3) network routing structure explain about one third of the differences in operational profitability among airlines. The magnitudes of the parameter estimates provide some unexpected priorities for increasing profitability. Two of the service design choices, fleet complexity and the centralization of the flight network, explain over 75 % of the impact of structural service design choices on airline operational profitability.