BPEA | 1996: Microeconomics

Causes and Consequences of Airline Fare Wars

Microeconomics 1996

SINCE THE AIRLINE industry was deregulated, its financial performance has continued to be extremely volatile. During its most recent downturn, which lasted from 1990 to 1993, industry losses totaled nearly $13 billion, prompting worried policymakers to create the National Commission to Ensure a Strong Competitive Airline Industry in 1993. Although the primary recommendation of that commission—to establish another commission to provide financial advice to the industry—has been ignored, it nevertheless raised the possibility of some form of government intervention in the airline industry if performance did not improve. Although the airlines rallied nicely after the losses of the early 1990s, even the near-record profits made during 1995 only partially offset those losses.