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Financial distress, survival network design strategies, and airline pricing: An event study of a merger between a bankrupt FSC and an LCC in Brazil

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  • de Oliveira, Renan P.
  • Oliveira, Alessandro V.M.

Abstract

This paper develops an event study to investigate the airfare effects of the bankruptcy of a financially distressed full-service carrier (FSC) and its subsequent acquisition by a low-cost carrier (LCC) in Brazil. We account for the distressed carrier's survival network design strategies (SNDS) pursued during its reorganization—a suspected source of sample selection bias. Additionally, as rivals' pricing could be aimed at driving the distressed/bankrupt carrier out of the market, we treat the carrier's distress as endogenously determined with it. Our results do not uncover any survival pricing behavior stemming from SNDS, but reveal fiercer price competition from rivals in periods preceding both the distressed carrier's bankruptcy filing and acquisition. We also find evidence of enduring price competitiveness in the long run of the acquisition event, shedding light on the potential facilitating role played by bankruptcy protection regulations in keeping and sustaining market contestability after the bankruptcy-filing period.

Suggested Citation

  • 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).
    • Handle: RePEc:eee:jaitra:v:92:y:2021:i:c:s0969699721000272
    DOI: 10.1016/j.jairtraman.2021.102044
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    More about this item

    Keywords

    Airfare; Airline; Acquisition; Bankruptcy; Econometrics; Merger; Network management; Sample selection;
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L93 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Air Transportation

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