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The impact of airline financial distress on US air fares: A contingency approach

Author

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  • Hofer, Christian
  • Dresner, Martin E.
  • Windle, Robert J.

Abstract

This article investigates to what extent an airline's financial distress impacts its pricing behavior. While prior research suggests that, on average, distressed airlines sell at lower fares, it is hypothesized that the magnitude of this effect may depend on certain firm and market specific contingencies. A large-scale empirical analysis using panel data from the US airline industry is conducted. The results indicate that firm financial distress and air fares are generally negatively related. It is further shown that the magnitude of the effect of distress on fares decreases with the magnitude of operating costs and firm's market shares and increases with firm size and the level of market concentration. Implications for policy makers and managers are discussed.

Suggested Citation

  • Hofer, Christian & Dresner, Martin E. & Windle, Robert J., 2009. "The impact of airline financial distress on US air fares: A contingency approach," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 45(1), pages 238-249, January.
    • Handle: RePEc:eee:transe:v:45:y:2009:i:1:p:238-249
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    Citations

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    Cited by:

    1. Lee, Hwa Ryung, 2009. "Bankruptcies and low-cost Carrier Expansion in the Airline Industry," Department of Economics, Working Paper Series qt8g8639tn, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
    2. Adler, Nicole & Mantin, Benny, 2015. "Government and company contracts: The effect on service and prices in international airline markets," Economics of Transportation, Elsevier, vol. 4(3), pages 166-177.
    3. Moon, Joonho & Lee, Won Seok & Dattilo, John, 2015. "Determinants of the payout decision in the airline industry," Journal of Air Transport Management, Elsevier, vol. 42(C), pages 282-288.
    4. Wang, Zuozheng & Hofer, Christian & Dresner, Martin E., 2013. "Financial condition, safety investment and accident propensity in the US airline industry: A structural analysis," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 49(1), pages 24-32.
    5. de Oliveira, Renan P. & Oliveira, Alessandro V.M., 2021. "Financial distress, survival network design strategies, and airline pricing: An event study of a merger between a bankrupt FSC and an LCC in Brazil," Journal of Air Transport Management, Elsevier, vol. 92(C).

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