The Effect of Operational Performance and Focus on Profitability: A Longitudinal Study of the U.S. Airline Industry

We study the impact of operational performance on profitability in the context of the U.S. domestic airline industry. In addition, we investigate the impact of focus [Skinner, W. 1974. The focused factory. Harvard Bus. Rev. 52(3) 113-121] on profitability in services. We use quarterly data on all major carriers, available since the introduction of required reporting of service indicators to the U.S. Department of Transportation. Our analysis demonstrates two main points. First, the relationship between operational performance and profitability is contingent on a company's operating model; "focused" airlines show a link between late arrivals and profitability while full-service airlines do not. Also, capacity utilization is a stronger driver of profitability for full-service airlines than for focused airlines. Second, focused airlines outperform the rest of the industry in terms of profitability.