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

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

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    Bibliographic Info

    Article provided by Elsevier in its journal Transportation Research Part E: Logistics and Transportation Review.

    Volume (Year): 45 (2009)
    Issue (Month): 1 (January)
    Pages: 238-249

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    Handle: RePEc:eee:transe:v:45:y:2009:i:1:p:238-249

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    Web page: http://www.elsevier.com/wps/find/journaldescription.cws_home/600244/description#description

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    Related research

    Keywords: US airline industry Financial distress Air fares Contingency approach;

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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. 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.

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