ABSTRACT

The analysis has two main objectives: 1) to examine labor productivity and multifactor productivity 

(MFP) in U.S. air transportation during the 1990 

to 2001 period and to compare these measures to 

those of two other transportation subsectors and 

of the U.S. business sector; and 2) to assess the 

factors that have affected changes of labor productivity and MFP in air transportation over time. 

The assessment fi nds that labor productivity and 

multifactor productivity in air transportation both 

increased over the analysis period. However, both 

measures grew at lower rates during the second 

half of the 1990s. Factors affecting increases in labor productivity include increases in capital intensity and technological advances. Factors affecting 

multifactor productivity include improvements 

in the capital input, measures that increase the 

utilization of air carrier resources, measures that 

speed up maintenance work and the marketing 

of air services, and changes in industry structure 

through mergers, acquisitions, and bankruptcies.

An Analysis of Labor and Multifactor Productivity

in Air Transportation: 1990–2001

ANTHONY D. APOSTOLIDES

U.S. Department of Transportation

Bureau of Transportation Statistics

Offi ce of Advanced Studies

Washington, DC 20590

anthony.apostolides@dot.gov
2 AN ANALYSIS OF LABOR AND MULTIFACTOR PRODUCTIVITY IN AIR TRANSPORTATION

INTRODUCTION

This paper evaluates changes in productivity in the 

U.S. air transportation subsector during the 1990-

2001 period. The analysis has two main objectives: 

1) to examine labor productivity and multifactor 

productivity (MFP) in air transportation over time 

and to compare these measures to those of two 

other transportation subsectors and of the U.S. 

business sector; and 2) to assess the factors that affected changes in labor productivity and multifactor productivity in air transportation.

 The analysis examines two primary time periods: 

1990 to 2000 and 1990 to 2001. The difference 

in results between these periods shows the indirect 

impact of the catastrophic events of September 11, 

2001. The analysis also uses the subperiods of 1990 

to 1995 and 1995 to 2000 (and 2001) in order to 

examine changes over time in relevant productivity 

variables. It compares productivity changes in air 

transportation to those in line-haul railroads, longdistance general freight trucking, and overall U.S. 

business.

 The paper differs from other studies that assess the productivity—either labor or MFP—of 

air transportation with regard to the scope, unit of 

analysis, period of analysis, and methodology used. 

The present analysis uses annual industry data on 

labor productivity and MFP in U.S. air transportation; these data were obtained from the Bureau of 

Labor Statistics, and the MFP data are based on 

the conventional method of estimation used by 

federal agencies. By contrast, other studies use data 

on individual airlines or for different and more distant time periods (Oum and Yu, 1995; Windle and 

Dresner, 1992). 

Still other studies assess only labor productivity 

in air transportation and for non-U.S. air carriers 

(Alamdari, 1998). Furthermore, other analyses 

use other methodologies, such as the Malmquist 

procedure, to estimate effi ciency of individual air 

carriers (Alam and Sickles, 2000), or they estimate 

the Fisher index of productivity by using cross-sectional data of individual U.S. air carriers (Ray and 

Mukherjee, 1996).

LABOR PRODUCTIVITY 

Labor productivity is defi ned as output per unit 

of labor and is calculated by dividing output by a 

measure of the labor input (typically labor hours). 

For air transportation, output is measured in terms 

of passenger-miles and ton-miles; for rail and truck 

transportation, output is measured in ton-miles. 

The derivation of labor productivity can be illustrated through an industry production function: 

Output = f (labor, capital, intermediate goods). 

Consequently, labor productivity = output/labor.

 Industry data used in this paper are classifi ed 

under the North America Industry Classifi cation 

System (NAICS). Labor productivity is evaluated 

for three transportation industries or subsectors: 

Air transportation (NAICS industry number 481); 

Line-haul railroads (NAICS 48211); and General 

freight trucking, long-distance (NAICS 48412). 

Comparisons of labor productivity are also made 

with the U.S. business sector. That sector is based 

on GDP (gross domestic product) but excludes 

general government, nonprofi t institutions, paid 

employees of private households, and the rental 

value of owner-occupied dwellings. The words “industry” and “subsector” are used interchangeably 

in the paper. 

 To evaluate labor productivity in air transportation, data on levels of productivity over time are 

plotted in fi gure 1. These data indicate that labor 

productivity increased from 1990 until 1997, when 

it reached its peak. In 1998, labor productivity 

declined and stayed at this lower level until 2000. 

In 2001, it declined again, quite signifi cantly, as 

industry output and demand experienced a sudden 

and substantial decline following the catastrophic 

events of September 11th, 2001.

To compare labor productivity in air transportation with the other two transportation industries 

and the U.S. business sector, relevant data are plotted in fi gure 2. There, one observes the following: 

From 1990 to 2000 (and with the exception 

of 1991 to 1993), labor productivity in air 

transportation was at higher levels than in 

long-distance trucking and the U.S. business 

1.
APOSTOLIDES 3

sector. In 2001, however, labor productivity in air transportation declined to a lower 

level than it did in the U.S. business sector. 

Rail transportation was the one subsector 

where labor productivity increased faster 

than in air transportation. Rail transportation had continual increases in labor productivity over time. In fact, labor productivity 

in this subsector continued to increase in 

2001, while it declined in air transportation 

and trucking. 

 In order to make comparisons from another 

perspective, growth rates of labor productivity are 

presented in table 1. These data indicate a big drop 

in the annual growth rate of labor productivity in air 

transportation from 1990 to 2000 (2.4%) as compared to 1990 to 2001 (1.6%). This clearly shows 

the very signifi cant impact of September 11th on this 

subsector. After that date, output of air transportation dropped immediately and signifi cantly, while the 

labor force in air transportation declined, but with a 

time lag. 

 With respect to comparisons with the other transportation subsectors and the private business sector, 

2.

the annual growth rate of labor productivity in air 

transportation over the 1990 to 2000 period was 

higher (2.4%) than in trucking (1.7%) and in the 

U.S. business sector (2.0%). From 1990 to 2001, 

however, the growth rate for air transportation was 

lower (1.6%) than that of business sector (2%). In 

both time periods, rail transportation experienced 

the highest growth rate of labor productivity. 

 With regard to the subperiods, the growth rate 

of labor productivity in air transportation declined 

signifi cantly from 1995 to 2000—when it grew 

0.6% per annum—compared to 1990 to 1995—

when it grew 4.2% per annum. Also, the growth 

of labor productivity in air transportation from 

1990 to 1995 was higher than that of long-distance 

trucking and of U.S. business, though lower than 

that of rail. By contrast, from 1995 to 2000, the 

growth of labor productivity in air transportation 

was the lowest (although positive) of the three 

transportation subsectors, and lower than that of 

the business sector. Therefore, these data show that 

labor productivity in air transportation was declining in the second half of the 1990s, even before the 

events of September 11th.

FIGURE 1 Labor Productivity in Air Transportation

199019911992199319941995199619971998199920002001

100

110

120

130

140

Labor Productivity Index 1990 = 100

Air transportation

Source: The data on which this chart is based were obtained from 

the Bureau of Labor Statistics internet site: ftp://ftp.bls.gov/pub/

special.requests/opt/dipts/ipr.aiin.txt

FIGURE 2 Labor Productivity in Transportation and 

U.S. Business

1990199119921993

19941995199619971998199920002001

100

110

120

130

140

150

160

170

180

Labor Productivity Index 1990 = 100

Line-haul railroads

Air transportation

U.S. business sector

General freight

trucking - long

distance

Sources: The data on which this chart is based were obtained 

from the Bureau of Labor Statistics internet site. For the three 

transportation industries: ftp://ftp.bls.gov/pub/special.requests/

opt/dipts/ipr.aiin.txt. For Private Business: http://data.bls.gov/

PDQ/servlet/SurveyOutputServlet.
4 AN ANALYSIS OF LABOR AND MULTIFACTOR PRODUCTIVITY IN AIR TRANSPORTATION

FACTORS AFFECTING LABOR 

PRODUCTIVITY

Increases in labor productivity refl ect the joint effect of a number of infl uences. The basic factors 

that affect labor productivity in an industry are: 

increased use of capital in production—

which increases the amount of capital per 

worker; and

technological progress, which can include 

a number of factors and will be examined 

later in the paper. 

 Capital per worker in air transportation increased over time, by 22.2% from 1990 to 2001, 

as indicated by data presented in table 2. This 

increased capital intensity of service delivery. 

However, capital per worker did not increase 

uniformly during the period of analysis. Relatively 

higher growth rates from 1990 to 1995 were followed by lower increases from 1995 to 2000 (or 

2001). This factor is related to the declining labor 

productivity, discussed at a later point. 

 A related factor that accompanied the increased 

capital input is the improvement in the quality of 

capital used in the delivery of air transportation 

services. This relates to the fact that capital input 

of more recent vintage incorporates advances in 

technology, as compared to capital input of less 

recent vintage. In air transportation, such technological advances include the increased use over 

time of newer aircraft models that required two 

pilots instead of three. That resulted in increased 

1.

2.

productivity of labor as fewer pilots served the 

same number (or higher) of passengers. The reduction in the number of pilots per aircraft took place 

over time and incrementally in airlines, generally 

in the 1980s and the 1990s. As older airplanes 

needing three pilots were retired, airlines would 

purchase newer airplanes that needed only two. 

This included the replacement of Boeing-727s with 

newer Boeing-737s or with Airbus-320 models.

 The reduction in airplane pilots was related to 

new airplane models. Airplanes are part of the 

capital input of the industry, and these new models 

would be measured through higher airplane prices 

and thus higher measured capital intensity (capital 

per worker). Because these airplanes resulted in a 

reduction in the number of pilots, thus increasing 

output per worker, this factor is classifi ed under 

labor productivity (although it can also relate to 

MFP).

 Also, the average stage length of air travel increased over the period of analysis. This applies to 

domestic and international travel (data from BTS, 

Offi ce of Airline Information). With regard to international travel, in the early 1990s, more U.S. 

carriers began to grow internationally and were 

fl ying long-distance trips using larger aircraft. This 

would have resulted in higher labor productivity 

in terms of passenger-miles per employee. 

 In addition, with regard to aircraft scheduling, 

in recent years, several hub-spoke carriers decided 

to depeak their schedules. This entails departure 

times of airplanes that are more spread out instead 

TABLE 1 Growth Rates of Labor Productivity in Transportation and U.S. Business

(Growth Rates - annual, percentage)

1990-2000 1990-2001 1990-1995 1995-2000 1995-2001

Air transportation 2.4 1.6 4.2 0.6 -0.6

Line-haul railroads 5.2 5.3 5.7 4.6 5.0

General freight trucking 

—long distance 1.7 1.4 1.5 2.0 1.3

U.S. business 2.0 2.0 1.4 2.6 2.5

Source: The data on which these growth rates are based were obtained from the Bureau of Labor Statistics 

internet site. For the three transportation industries: ftp://ftp.bls.gov/pub/special.requests/opt/dipts/ipr.aiin.txt. 

For private business: http://data.bls.gov/PDQ/servlet/ SurveyOutputServlet.
APOSTOLIDES 5

of being concentrated during particular time 

periods of the day. Depeaking results in the 

use of fewer gates and aircraft, and it spreads 

out the demand on the carriers resources. 

Consequently, there are less manpower needs. 

The outcomes of such changes are increased 

labor productivity and multifactor productivity (which is examined in a later section). A 

reduction in the number of airplanes, from a 

depeaked schedule, also implies that the previous use of concentrated take-offs at the hub 

was accompanied by a substantial number of 

empty seats.

 Moreover, there has been increased use of information technology (computer hardware and 

software) to schedule maintenance checks for 

airplanes. The utilization of computer-based 

programs, by air carriers, resulted in productivity improvement, which translated into a 

25-percent reduction in the number of people 

performing maintenance scheduling (Communication with staff of air carriers).

 Data presented in figure 1 show that after 

1997 the level of labor productivity in air 

transportation declined, and this was followed 

by a significant drop in 2001. The decrease in 

2001 was the result of a large decline in output 

(demand for air travel) while the labor force 

was reduced after a time lag. There was also 

a recession in that year. The decline in labor 

productivity after 1997 would appear to have 

been affected by several factors and they are 

discussed below. 

 Increases in capital per worker declined considerably during the 1995 to 2001 period as 

compared to the previous subperiod. While during the initial subperiod of 1990 to 1995, capital 

per worker grew at 3.3% per annum (table 2), its 

growth dropped signifi cantly to only 0.6% per annum from 1995 to 2001. In fact, during the 1995 

to 2000 period, the ratio experienced a negative 

growth rate (-0.2% annually). The considerable 

slowing down, from 1995 to 2000 (2001), in the 

increase of capital per worker would have affected 

TABLE 2 Increases in Capital and Labor in Air Transportation

(Annual Percentage Rates)

Year

Index 

of labor 

hours

Index of 

capital

Index of 

capital per 

labor hour

Growth 

of labor 

hours

Growth of 

capital 

Growth of 

capital per 

labor hour Period

Growth 

of capital 

per labor 

hour

(1) (2) (3) (4) (5) (6) (7) (8)

1990 100.0 100.0 100.0

1991 97.0 103.1 106.3 -3.0 3.1 6.3

1992 98.9 101.3 102.4 2.0 -1.7 -3.6

1993 98.0 105.3 107.4 -0.9 3.9 4.9

1994 97.4 112.2 115.2 -0.6 6.6 7.2

1995 96.7 113.9 117.8 -0.7 1.5 2.3 1990-1995 3.3

1996 99.7 117.0 117.4 3.1 2.7 -0.4

1997 102.9 120.5 117.1 3.2 3.0 -0.2

1998 107.8 125.9 116.8 4.8 4.5 -0.3

1999 112.4 131.4 116.9 4.3 4.4 0.1

2000 119.3 139.3 116.8 6.1 6.0 -0.1 1995-2000 -0.2

2001 119.1 145.5 122.2 -0.2 4.5 4.6 1995-2001 0.6

Source: For index numbers of labor hours and capital, Bureau of Labor Statistics internet site: ftp://ftp.bls.gov/pub/special.requests/opt/

dipts/indmfp3.txt. The index of capital per per labor hour and the growth rates were computed by the author.
6 AN ANALYSIS OF LABOR AND MULTIFACTOR PRODUCTIVITY IN AIR TRANSPORTATION

decreases in the growth of labor productivity 

which are observed during the same time period.

 The explanation of the declining growth in 

capital per worker is a challenge. During the second half of the 1990s, the industry was doing well 

fi nancially; consequently, that would not have impeded investment. One factor that is suggested is 

a form of competition in the industry that relates 

to fl ight frequency.1

 Accordingly, air carriers compete on the basis of frequency of fl ights and thus 

attempt to increase their market share, or maintain them if a competitor increases their number 

of fl ights. This type of competition could have resulted in signifi cant increases in investment—i.e., 

airplanes—during the fi rst half of the 1990s. In 

time, the potential for the number of fl ights would 

have reached some saturation point.

 The impact of increased size and speed of airplanes diminished over time. Since the 1950s and 

1960s, the size and speed of airplanes used in 

commercial aviation increased. Moreover, in the 

1970s, wide-body jets were introduced in commercial service, also increasing airplane size. In 

addition, aircraft models were “stretched” and 

were thus able to accommodate more passengers. These factors had a positive effect on labor 

productivity as bigger and faster airplanes carry 

more passengers and cargo per day. This increases 

output (i.e., passenger-miles or ton-miles) of the 

labor force, thus raising labor productivity. However, the airplanes used in commercial aviation in 

the United States peaked in size and speed before 

1990; consequently, the impact of these factors on 

productivity diminished over time.

In this regard, one notes that in some cases, the 

reduction in the number of pilots in the aircraft 

took place in the late 1980s and 1990s. In such 

cases, B-727s (with three pilots) were replaced 

with aircraft that needed two pilots such as the 

A-320 (Communication with staff of air carrier). 

Also, the replacement of turbo-props by regional 

jets, starting in the late 1990s, would have resulted 

1

 The use of schedule frequency has been discussed in 

previous work: “Hubbing and Airline Costs”, by Kanafani and Hansen, 1985.

in increasing speeds. However, the positive effects 

of these two factors on labor productivity were 

not suffi cient to affect the declining trend in labor 

productivity in the second half of the 1990s.

Work rules, including scope clauses, would appear to have had a negative impact on labor productivity in an indirect way. Scope clauses in labor 

contracts of pilots require that pilots of regional 

jets be paid the same salaries as pilots of larger 

airplanes. This limits the economies available from 

using regional jets and discourages their use. Moreover, scope clauses limit the size of regional jets that 

airlines can use. This constrains the potential increases in output (passenger-miles) which, in turn, 

constrains labor productivity. 

MULTIFACTOR PRODUCTIVITY 

In the estimation framework for MFP, increases in 

output are attributed to 1) increases in the quantity of 

the inputs, and 2) increases in multifactor productivity (MFP). Multifactor productivity refers to the productivity of all the inputs used in production. After 

the contribution of the amount of inputs to output is 

estimated, the remaining output growth is attributed 

to increases in productivity of the inputs—i.e., multifactor productivity, also referred to as technological 

progress. Multifactor productivity can be affected by 

improvements in the quality of the inputs. This includes improvements in computers and other equipment used in production and maintenance systems. 

At the industry level, productivity (effi ciency) can also 

be affected by changes in industry structure brought 

about by mergers, acquisitions, and bankruptcies.

 For estimating MFP at the industry level, the output measure used is total output, rather than value 

added. The inputs used are: labor, capital, and intermediate inputs. The labor input is measured in terms 

of labor hours; while the capital input includes structures, equipment, inventories, and land (in a broad 

defi nition of capital). Intermediate inputs include 

purchased electricity, fuels, materials, and services. 

The weights used to estimate the contribution of each 

input to output are their shares in the total cost of 

production in the industry. 
APOSTOLIDES 7

 The basic estimating methodology was initially 

used in studies of economic growth, at the macroeconomic level, such as those by Denison and 

Kendrick (Denison, 1967; Kendrick, 1961). The 

methodological framework was enhanced over 

time and used in the calculation of multifactor 

productivity at the sectoral and industry levels at 

the Bureau of Labor Statistics, among others (BLS, 

1983; Duke, et al., 1992). 

 Data presently available from government 

sources (the BLS) on MFP for the transportation 

sector, under NAICS, relate only to air transportation. The plots presented in figure 3 indicate 

that MFP in air transportation increased at faster rates than that of the private business sector 

over the period of analysis. This sector excludes 

various activities as the business sector and, in 

addition, it excludes government enterprises.

FIGURE 3 Multifactor Productivity in Air Transportation and Private Business

199019911992

1993

1994

1995199619971998

19992000

2001

90

100

110

120

130 Multifactor Productivity Index 1990 = 100

Air transportation

U.S. private business sector

Source: Data on which this chart is based were obtained from the 

Bureau of Labor Statistics internet site. For data oir transportation: ftp://ftp.gov/pub/special.requests/opt/.dipts/indmfp3.txt. For 

data on Private Business: http://data.bls.gov/PDQ/servlet/SurveyOutputServlet.

 In 2001, the growth of MFP in air transportation declined. By contrast, labor productivity 

in air transportation began to decline in 1997 

(figure 1). Thus, the performance of MFP in air 

transportation was better than labor productivity as MFP continued to increase after labor 

productivity began to fall. MFP in air transportation grew faster than that of the private business sector in every period examined, except for 

2001. 

 To examine productivity from another perspective, growth rates of MFP are presented in 

table 3. These data show that over the 1990 to 

2001 period, MFP in air transportation grew at 

a significantly faster annual rate (at 1.4%) than 

in the U.S. private business sector (0.8%). With 

regard to subperiods, MFP in air transportation 

from 1990 to 1995 grew at a higher rate (2.1% 

per annum) than from 1995 to 2000 (1.7%). 

This drop in the growth of MFP is substantially 

less than that observed for labor productivity 

from 1995 to 2000. 

 These data indicate that, over the 1990 to 

2000 period, air transportation contributed 

positively and substantially to increases in multifactor productivity in the private business sector and, hence, to the U.S. economy. However, 

this contribution experienced a relative decline 

from 1995 to 2000 as compared to 1990 to 

1995. 

Factors Affecting Multifactor 

Productivity

A number of factors can affect growth of multifactor productivity (or technological progress) 

at the industry level. The factors that seem to 

have affected MFP growth in air transportation 

include:

improvements in the quality of the inputs, 

particularly capital;

increased use of computer technology; 

and 

changes in the structure of the industry. 

The text below examines these factors over the 

period of analysis. 

 There were improvements in the quality of 

capital—including various types of equipment 

used in air transportation. According to data in 

table 2, the capital input used in air transportation increased by 39.3% over the 1990 to 2000 

1.

2.

3.
8 AN ANALYSIS OF LABOR AND MULTIFACTOR PRODUCTIVITY IN AIR TRANSPORTATION

period (column 2, year 2000). Such increases 

in the quantity of the capital input would also 

have been accompanied by improvements in 

the quality of the capital input, as capital investment of more recent vintage incorporate 

newer and more effi cient technology. 2

 Improvements in the capital input include airplane engines that are more effi cient in the utilization of airplane fuel. Data in table 4 indicate that 

there was a rather steady and continual increase 

over time in the effi ciency with which intermediate inputs were used in air transportation. This 

effi ciency is shown by the ratio of “output per unit 

of intermediate purchases.” The ratio increased in 

the early 1990s, decreased in 1993, and then increased steadily until 2000. These changes indicate 

that the effi ciency with which intermediate inputs 

were utilized in air transportation increased over 

the period of analysis and particularly since 1993 

(until 2000). 

 This shows that as the newer aircraft models 

were replacing older models, their engines were 

more fuel-effi cient, thus resulting in reductions 

in the amount of fuel used for an airplane trip.

Improvements in the fuel effi ciency of airplane 

engines resulted in reduced use of intermediate inputs. This contributed to the increased effi ciency 

of the industry in using intermediate inputs.3

2

 Improvements in the quality of the capital input could be 

measured in the price indexes used to defl ate capital data. 

However, such a measurement has only been partial in the 

case of air transportation (per communication with staff of 

the Bureau of Labor Statistics). Consequently, the impact of 

improvements in capital would be included in the MFP.

3

 A paper by BEA’s R. Yuskavage, using SIC data, found 

a relative decline in intermediate goods in air transporta-

 Since 1990, air carriers have become more effi -

cient in driving more traffi c through their networks 

as average loads of airplanes have increased. There 

has been more effective revenue management and 

use of new distribution channels, particularly 

the internet, to sell otherwise empty seats. Revenue management entails the use of information 

technology to assist air carriers in maximizing 

revenues through higher load factors and/or yields 

(Communication with staff of ATA).

 In recent years, several hub-spoke air carriers 

decided to depeak their schedules by changing 

aircraft scheduling. This resulted in increasing the 

utilization of hub assets of the air carriers—such 

as aircraft facilities, labor, etc.—and in decreasing 

manpower needs. The outcomes of such changes 

are increases in multifactor productivity as well as 

labor productivity.

 With regard to aircraft maintenance, there has 

been use of Magneto Optic Imaging (MOI—an 

electromagnetic device), since the early 1990s, 

which allows aircraft inspectors to scan parts of 

the aircraft fuselage for cracks. This technology is 

in lieu of a pencil probe eddy current (an instrument to test for cracks), and provides a substantially faster inspection (personal communication 

with FAA Technical Center staff).

 There has been use of advanced ultrasonic imaging and analysis to inspect parts of the aircraft 

for cracks. This ultrasonic scanning method was 

implemented around 1995 and has been used to 

inspect for cracks in the wing fuel tank. The prevition, over 1992-1997, and that this decline was affected 

by a below-average growth in refi ned petroleum products 

– which include aviation gas and jet fuel (Yuskavage, 

2001).

TABLE 3 Growth of Multifactor Productivity in Air Transportation and Private 

Business

(Annual Percentage Rates)

1990-2000 1990-2001 1990-1995 1995-2000 1995-2001

Air Transportation 1.9 1.4 2.1 1.7 0.7

Private Business 0.9 0.8 0.6 1.3 0.9

Source: The data on which these growth rates are based were obtained from the Bureau of Labor 

Statistics internet site. For air transportation: ftp://ftp.bls.gov/pubspecial.requests/opt/dipts/indmfp3.

txt. For Private Business: http://data.bls.gov/PDQ/servlet/SurveyOutputServlet.
APOSTOLIDES 9

ous technology entailed an intrusive visual inspection, in which an inspector had to crawl into the 

fuel tank and remove sealant in order to do the inspection. The old technology took an estimated 800 

man-hours. The ultrasonic scanning method takes 

about 48 hours, resulting in a savings of about 750 

man-hours to do the inspection on one airplane. In 

addition, the new technology provides better coverage than the internal visual inspection (personal 

communication with FAA Technical Center staff).

 In aircraft maintenance, new technologies have 

been used to inspect aircraft parts. This includes 

the use of an automated eddy-current procedure to 

test engine parts for cracking and corrosion. Prior 

to the implementation of this technology, it took 6 

to 8 hours for an inspector to test an engine disk. 

With the new technology, the inspector needs 30 

minutes to test the engine disk. Moreover, this is a 

more reliable inspection with a higher level of confi dence (Communication with staff of air carriers).

 Moreover, there have been improvements in sealants, and particularly their cure time; that resulted 

in faster maintenance times of aircraft. New and 

improved sealants—used for the cockpit window, 

for example—have a cure time of 6 hours, while 

the older sealants had a cure time of several days 

(Communication with staff of air carriers). This 

reduction in cure time decreases the length of time 

during which an aircraft is out of service, and thus 

increases utilization of capital assets. 

 There has been increased use of information 

technology (computer hardware and software) to 

schedule maintenance checks for airplanes and to 

schedule specifi c maintenance tasks. Also, there 

has been increased use of computers for keeping 

maintenance records. The utilization of computerbased programs by air carriers has resulted in productivity improvements. This has made possible 

(in one case) a 25% reduction in the number of 

people performing maintenance scheduling (Communication with staff of air carriers).

 Also, there has been increased use of computerized maintenance manuals instead of paper manuals. The use of computerized manuals makes it 

easier to revise and update these manuals, instead 

of updating paper manuals by hand. The mainteTABLE 4 Data Relevant for Labor Productivity and MFP in Air Transportation

(Index Numbers, 1990=100)

Year Output

Labor 

Hours Capital

Intermediate 

Purchases

Output 

per hour

Output 

per unit of 

capital

Output 

per unit of 

intermediate 

purchases

 (1) (2) (3) (4) (5) (6) (7)

1990 100.0 100.0 100.0 100.0 100.0 100.0 100.0

1991 98.0 97.0 103.1 97.3 101.0 95.1 100.7

1992 103.9 98.9 101.3 101.1 105.1 102.6 102.8

1993 107.2 98.0 105.3 113.9 109.4 101.8 94.1

1994 114.2 97.4 112.2 112.9 117.2 101.8 101.2

1995 119.0 96.7 113.9 113.5 123.1 104.5 104.8

1996 127.2 99.7 117.0 116.7 127.6 108.7 109.0

1997 132.8 102.9 120.5 120.8 129.1 110.2 109.9

1998 135.7 107.8 125.9 122.8 125.9 107.8 110.5

1999 142.5 112.4 131.4 125.0 126.8 108.4 114.0

2000 151.3 119.3 139.3 124.8 126.8 108.6 121.2

2001 141.3 119.1 145.5 117.9 118.6 97.1 119.8

Source: Bureau of Labor Statistics internet site: ftp://ftp.bls.gov/pub/special.requests/ opt/dipts/indmfp3.txt.
10 AN ANALYSIS OF LABOR AND MULTIFACTOR PRODUCTIVITY IN AIR TRANSPORTATION

nance updates on a computer system change the 

maintenance instructions at the same time, instead 

of revising each paper manual by hand. The increased use of computer-based maintenance manuals saves time and labor costs. The computerized 

system also reduces duplication and distribution 

costs of the revised maintenance manuals. The 

savings from reduced publication costs have been 

estimated at $2.0 million annually for an air carrier (Communication with staff of air carriers).

 There has been increased use of automation in 

the loading and unloading of airplanes. With the 

former way of doing things, several people would 

be employed to load baggage to the main storage 

area (belly) of the airplane. New technology, used 

for narrow-body aircraft, includes the use of a 

piece of equipment called a Ramp Snake. This is 

an electric, self-propelled, semiautomatic loading 

and unloading system. It replaces conventional 

belt loaders and, in the plane, the mechanical 

loading systems. The benefi ts of the system are:

reduced employee injuries; 

reduced damage to the aircraft; and 

improvement in loading effi ciencies (Communication with staff of air carriers).

Over time and continuing to the present, 

there has been a continual increase in the use 

of more sophisticated computerized systems 

for the buying and selling of air transportation 

tickets. Presently, consumers with access to 

computers can go to the internet and purchase 

a ticket from a computerized system in 

stead of calling the airline. Computerized ticket 

and invoice systems have facilitated the ticket 

transactions of more passengers and freight, 

with the same (or lower) number of staff. The 

result is higher output (passengers and freight) 

for the quantity of labor and capital used; thus, 

increased productivity (labor and MFP). It may 

be noted that such increases in productivity 

brought about by computer systems, and their 

use by consumers, allowed airlines to reduce 

commissions paid to travel agents. 

1.

2.

3.

Changes in Industry Structure

The structure of an industry can change over time 

as a result of mergers, acquisitions, and bankruptcies. Such changes can affect effi ciency (productivity) in an industry and they are examined below 

for the air transportation industry.

Mergers and Acquisitions

In air transportation, a horizontal merger combines two air carriers into one. Consequently, in 

the new postmerger fi rm, there is expected to be 

merging of certain functions of the two premerger 

fi rms; these would include fi nance, payroll, and 

advertising. These developments result in the same 

output being produced but with fewer inputs such 

as labor, equipment, building space, and materials 

and services. This results in a reduction in inputs 

(a reduction in costs) and an increase in multifactor productivity.

 Data on mergers and acquisitions, presented in 

appendix table 1, indicate that a substantial number of mergers took place in air transportation in 

the second half of the 1980s and in the 1990s. 

It can take time—probably several years—for the 

cost-reduction effects of mergers and acquisitions 

to become operative. It is expected that mergers 

that occurred in the 1990s affected industry effi ciency in that decade. In addition, it is likely that 

mergers that took place in the late 1980s were 

also affecting productivity in the early 1990s and 

beyond.

Bankruptcies

During the 1990s, a number of bankruptcies took 

place in the air transportation subsector, shown 

by the data in appendix table 1. Because effi cient 

companies are expected to survive and grow over 

time, and ineffi cient companies are less likely to 

survive, bankruptcies in air transportation generally result in increased effi ciency (productivity) in 

the industry. There was not a general deterioration 

of demand during the period of analysis. Consequently, it would appear that bankruptcies related 

rather to effi ciency considerations of individual 
APOSTOLIDES 11

airlines, and the inability of companies’ management to successfully deal with problems on the 

supply side—i.e., labor, capital, or intermediate 

inputs. A related factor was the increased competition from new industry entrants, typically with 

lower costs, that followed deregulation in 1978.

CONCLUSIONS

Productivity increases in the U.S. economy over 

time have contributed signifi cantly to economic 

growth and to improvements in the standard of 

living. According to the data and analysis presented in this paper, growth of labor and multifactor productivity in air transportation grew rather 

signifi cantly over the 1990-2000 period. Thus, the 

industry contributed positively to the economy’s 

productivity. However, the growth of both labor 

and multifactor productivity declined in the second half of the 1990s.

 Increases in labor productivity in air transportation were declining in the second half of the 

1990s, even before the events of September 11th. 

The growth of labor productivity in air transportation also declined during the 1995 to 2000 period in relation to other industries. 

Factors that had a positive impact on labor productivity in air transportation include 

increases in the capital input. These increases 

in the capital input were accompanied by improvements in the capital input. This included 

newer airplane models that needed fewer pilots, 

and increased use of computer technology in the 

maintenance of airplanes, such as in the scheduling of maintenance checks. Labor productivity increases were also affected by technological 

innovations.

 Factors that appear to have contributed to 

the lower growth rate in labor productivity in 

the second half of the 1990s include: 

The diminishing benefit of increasing size 

and speed of airplanes, and

The effect of work rules in the industry 

including scope clauses.

1.

2.

 A number of factors affected increases in 

MFP in air transportation. These factors include: 

Improvements in the capital input, which 

incorporate advances in technology; this included more fuel-effi cient airplane engines, 

which contributed to the reduction in the 

utilization of intermediate goods; 

In maintenance work, the use of new technology that signifi cantly reduced the time 

of inspecting and repairing airplanes (and 

their engines), which contributed to less 

out-of-service time of airplanes; 

The use of more automated equipment for 

the loading of baggage on airplanes; 

The increasing use of information technology to market airplane tickets; and 

Changes in the industry structure, through 

mergers/acquisitions and bankruptcies.

 This information indicates that a primary type 

of technological advances in air transportation 

have been of the embodied type. This is similar to 

the situation in other industries. These technological advances were incorporated in capital goods 

through new investment implemented by air carriers. Consequently, the sources of these technological advances were the industries that make capital 

goods—including robotics, computers, etc. 

 It would appear that air transportation is quite 

amenable to productivity improvements from 

technological innovations. And a substantial number of such innovations have been developed and 

implemented in the decade. This portends rather 

well for future technological developments in the 

industry.

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APOSTOLIDES 13

APPENDIX TABLE 1 Mergers/Acquisitions in Air

Transportation (1985-2001)

Year Air Carriers 

1985 Southwest acquired Muse

1985 Piedmont acquired Empire

1985 People acquired Frontier

1986 Northwest acquired Republic

1986 Texas acquired Eastern

1986 TWA acquired Ozark

1986 Alaska acquired JetAmerica

1986 Delta acquired Western

1986 American acquired Air Cal

1986 Alaska acquired Horizon

1986 USAir acquired Pacifi c Southwest

1987 USAir acquired Piedmont

1987 Braniff acquired Florida Express

1987 Continental acquired People Express

1994 Southwest acquired Morris Air

1997 AirTran merged with ValueJet

1998 American acquired Reno Air

2001 American acquired TWA

Bankruptcies in Air Transportation (1985-2001)

1991 Eastern Airlines

1994 Braniff

1997 Carnival

1997 Western Pacifi c

1998 Kiwi

Note: “Bankruptcies” refer to Chapter 7 liquidation rather than Chapter 

11 restructuring.

Sources: Lee, D., 2002. Oster, C.V., Jr., and Strong, J.S., 2001. U.S. 

Centennial of Flight Commission (www.centennialoffl ight.gov). U.S. 

Department of Transportation, Air Carrier Traffi c Statistics.