Do Airline Bankruptcies Reduce Air Service?

Severin Borenstein, Nancy L. Rose

NBER Working Paper No. 9636
Issued in April 2003
NBER Program(s):Industrial Organization

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.

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Document Object Identifier (DOI): 10.3386/w9636

Published: Borenstein, Severin and Nancy Rose. “The Impact of Bankruptcy on Airline Service Levels." American Economic Review Papers and Proceedings 93, 2 (May 2003): 415-419.

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