Working Paper: NBER ID: w9636
Authors: Severin Borenstein; Nancy L. Rose
Abstract: The airline industry's current financial crisis has raised concerns over the ramifications of airline bankruptcies for air service and the economy. Such bankruptcies, however, nearly always occur when demand is weak, and, thus, when even healthy airlines are inclined to reduce flights. Moreover, from a consumer and policy perspective, the real concern is total air service offered, not the number of flights offered by a particular airline. We study all major U.S. airline bankruptcies since 1984 in order to estimate the effect of bankruptcy on air service, controlling for demand fluctuations and recognizing that competing airlines may increase service in response to a reduction in flights by a bankrupt airline. We do not find substantial effects of bankruptcy on flights offered or destinations served at large and small airports, but do find an impact at medium sized airports. We estimate, however, that service changes due to bankruptcy are not large in comparison to typical quarter-to-quarter fluctuations in service that occur at airports in the absence of carrier bankruptcies.
Keywords: airline bankruptcies; air service; financial distress
JEL Codes: L1; L9
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Airline bankruptcies (L93) | Declines in service levels (L87) |
| Airline bankruptcies (L93) | Declines in service levels at medium-sized airports (L93) |
| Airline bankruptcies (L93) | No statistically significant decline in service levels at large airports (L93) |
| Airline bankruptcies (L93) | Cumulative effects on service levels over five quarters (C22) |
| Bankruptcy filings (K35) | Flight numbers and destinations served (L93) |
| Bankruptcy filings (K35) | Declines in service levels (L87) |