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Do Airline Bankruptcies Reduce Air Service?

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  • 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.

Suggested Citation

  • Severin Borenstein & Nancy L. Rose, 2003. "Do Airline Bankruptcies Reduce Air Service?," NBER Working Papers 9636, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:9636
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    References listed on IDEAS

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    Cited by:

    1. Severin Borenstein & Nancy L. Rose, 2003. "The Impact of Bankruptcy on Airline Service Levels," American Economic Review, American Economic Association, vol. 93(2), pages 415-419, May.
    2. 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.
    3. Lee, Hwa Ryung, 2009. "Does Bankruptcy Protection Harm the Airline Industry?," Department of Economics, Working Paper Series qt0s40v0x9, Department of Economics, Institute for Business and Economic Research, UC Berkeley.

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    More about this item

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L9 - Industrial Organization - - Industry Studies: Transportation and Utilities

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