Where did time go? A newsvendor structural analysis of 1 billion airline quotations.
About 43 million US domestic flights operated on routes that were serviced consistently by the same airlines from 1997 to 2017. The scheduled duration of these flights, as posted on computerized reservation systems, increased on average by 8.1% over the 21-year span. Where did the time go? Building on Deshpande and Arkan (2012), we develop a multi-period newsvendor model of how airlines decide their posted duration and show that the model can be reduced to a series of single-period newsvendor problems. The model explains more than 99% of the variation among the 43,062,886 posted flight durations in our data. We use structural estimation and counterfactual analysis to establish that more than 45% of the increase in posted duration stems from airlines strategically padding their schedule to achieve higher on-time performance. We also provide evidence that decreased airline competition on a route is associated with increased strategic padding.