The effect of labor cost on financial performance in the airline industry

This research investigates the optimal labor cost proportion by total assets of airlines. The sample consists of publicly traded airlines in the US stock market. We researched 52 airlines, and the study period was 1996-2013. A two-way fixed effect regression model was employed for the data analysis with a quadratic term as the main independent variable. The quadratic term aimed to demonstrate an inverted-U shaped relationship between labor cost and the financial performance of airlines. The results suggested that the inverted U-shaped relationship was significant in the context of the airline industry.