The effect of productivity and quality on profitability in US airline industry An empirical investigation

Purpose - This study aims to investigate the effect of productivity and quality on profitability in the US airline industry. Design/methodology/approach - Airlines operations and performance data were used to determine the effect of productivity and quality on profitability. Correlation and multivariate regression analysis have been used for data analysis. Findings - The results show that labor productivity is the most significant predictor of profitability. On-time performance has no relationship with profitability. The findings suggest that labor productivity, gas price, average annual maintenance cost and employee salary are significant predictors of profitability. The relationship between labor productivity and employee salary with profitability is positive, while gas price and average annual maintenance cost have a negative relationship with profitability. Research limitations/implications - The research could be more detailed by taking into account measures of airline safety. Additional measures for service quality could be considered. Practical implications - Operational performance (labor productivity) is the main source of profitability in the US airline industry followed by customer satisfaction and service quality. Originality/value - The study captures the performance of the airline industry based on longitudinal data from 1989 to 2008. Previous studies have used either quarterly or monthly observations. Second, the study examines the significance of productivity and quality on profitability. Previous studies have provided little insight regarding the effect of productivity and quality on profitability.