Capacity disruption and airline performance: Assessing the impacts of Boeing 737 Max grounding on the U.S. airline industry

This paper empirically investigates the capacity disruption, operation response, and performance impacts from the grounding of Boeing 737 Max aircraft in March 2019. The three directly impacted U.S. airlines were Southwest Airlines, American Airlines and United Airlines, with varying degrees of reliance on Max aircraft in their respective route networks. First, we assess airline operational responses to the Max grounding based on monthly flight operational data. Then we calculate the impacts of the grounding on revenue, cost and profit at the route level, using panel data for the three affected U.S. airlines during the period from Q3, 2018 to Q4, 2019. To draw inferences about the causal effects from the Max grounding on airline profits, we include three airlines that were not directly impacted by the MAX grounding as a control group and estimate difference-in-differences (DID) models, using propensity score matching methods for a robustness check. Our results show differences in operational adaptation among the three Max airlines in response to the Max grounding. Compared to Southwest and United Airlines, American Airlines was found to be least active in adding flights using non-Max aircraft on affected routes (i.e., where Max aircraft were operated) in responding to the Max grounding. Despite the operational adaptations by the three Max airlines, the DID estimations consistently suggest negative profit impacts from the Max grounding, with impacts positively associated with reliance on Max aircraft prior to the grounding. Finally, we find that profit reductions on Max routes were driven primarily by revenue declines, rather than by cost increases.