Does Labour Costs Matter for the Airline Industry

The world has entered a new paradigm in air travel which has enabled anyone to travel to any corner of the globe in a matter of hours. The objective of this paper is to examine the technical efficiency level of US (United States) airlines and how internal factors affect the technical efficiency of these airlines. The paper utilized the Cobb Douglas production function to estimate the efficiency level of the US airline industry. The findings reveal that the average technical efficiency of US airlines over the period from 2005 to 2016 was 54.3% with the technical efficiency score steadily decreasing from 56.9% in 2005 to 46.4% in 2016. Labour costs have a significant impact on airline performance due to the relationship between reductions in labour cost and the increase in productivity levels which inherently affectthe overall technical efficiency of US airlines.