The US airline industry: persistence and breaks

Abstract

This article examines the degree of persistence and breaks in the US airline industry. We use innovative seasonal and non-seasonal fractional integration and autoregressive models, which are more flexible than the standard approaches employed in the literature. Our model focuses on three important series namely revenue passenger mile, total revenue tonne miles and revenue passenger enplanement, disaggregated into domestic and international. We found first that all series are highly persistent with values for the degree of differentiation equal to or higher than 1 in the majority of the cases, especially with the international data. Moreover, a structural break is clearly identified in September 2001. Policy implications are then derived.

Keywords:

• US airlines
• fractional integration
• persistence and breaks

Acknowledgements

Comments of the editor and of three anonymous referees are gratefully acknowledged.

Notes

In spite of the annual nature of Table 1, we work in the paper with monthly data.

An I(0) process is defined as a covariance stationary process satisfying that or alternatively, in the frequency domain, if 0 < f(λ) < ∞ for all λ.

Nevertheless, the results in this work do not indicate any evidence of nonstationarity at frequencies away from zero.

See Gil-Alana (2008) for further details of this procedure.

Though not reported, the results strongly reject the hypothesis of an additional break in the data at conventional statistical levels.