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Can Financial Markets Inform Operational Improvement Efforts? Evidence from the Airline Industry

Author

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  • Kamalini Ramdas

    (Management Science and Operations, London Business School, London NW1 4SA, United Kingdom)

  • Jonathan Williams

    (Department of Economics, Terry College of Business, University of Georgia, Athens, Georgia 30602)

  • Marc Lipson

    (Darden School of Business, University of Virginia, Charlottesville, Virginia 22903)

Abstract

We investigate whether stock price movements can inform operations managers as to where they should focus improvement efforts. We examine how unexpected performance along several dimensions of service quality—on-time performance, long delays and cancellations, lost bags, and denied boardings—impacts contemporaneous stock returns. Prior research suggests that airlines buffer their flight schedules and engage in expensive employee incentive programs to increase the likelihood of on-time arrival. We find that only long delays are penalized by the market, and we identify a number of carrier-specific factors that alter the financial impact of long delays. We find that the penalty a carrier faces for long delays is significantly higher if it operates a high percentage of short-haul or connecting flights, or if its competitors incur fewer long delays in the same time period. Our findings suggest that developing ways to curtail long delays is a useful future research area.

Suggested Citation

  • Kamalini Ramdas & Jonathan Williams & Marc Lipson, 2013. "Can Financial Markets Inform Operational Improvement Efforts? Evidence from the Airline Industry," Manufacturing & Service Operations Management, INFORMS, vol. 15(3), pages 405-422, July.
    • Handle: RePEc:inm:ormsom:v:15:y:2013:i:3:p:405-422
    DOI: 10.1287/msom.2013.0448
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    References listed on IDEAS

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    Cited by:

    1. Yao Cui & A. Yeşim Orhun & Izak Duenyas, 2019. "How Price Dispersion Changes When Upgrades Are Introduced: Theory and Empirical Evidence from the Airline Industry," Management Science, INFORMS, vol. 65(8), pages 3835-3852, August.
    2. Nitin Bakshi & Sang-Hyun Kim & Nicos Savva, 2015. "Signaling New Product Reliability with After-Sales Service Contracts," Management Science, INFORMS, vol. 61(8), pages 1812-1829, August.
    3. Qi Wu & Guoming Lai, 2022. "The Effects of Stock-Based Incentives on Inventory Management," Management Science, INFORMS, vol. 68(7), pages 5068-5086, July.
    4. Ding, Li & Lam, Hugo K.S. & Cheng, T.C.E. & Zhou, Honggeng, 2018. "A review of short-term event studies in operations and supply chain management," International Journal of Production Economics, Elsevier, vol. 200(C), pages 329-342.
    5. Chris K. Y. Lo & Christopher S. Tang & Yi Zhou, 2022. "Do polluting firms suffer long term? Can government use data‐driven inspection policies to catch polluters?," Production and Operations Management, Production and Operations Management Society, vol. 31(12), pages 4351-4363, December.
    6. Scotti, Davide & Dresner, Martin & Martini, Gianmaria, 2016. "Baggage fees, operational performance and customer satisfaction in the US air transport industry," Journal of Air Transport Management, Elsevier, vol. 55(C), pages 139-146.
    7. Karca D. Aral & Erasmo Giambona & Ye Wang, 2022. "Buyer’s Bankruptcy Risk, Sourcing Strategy, and Firm Value: Evidence from the Supplier Protection Act," Management Science, INFORMS, vol. 68(11), pages 7940-7957, November.
    8. Mariana Nicolae & Mazhar Arıkan & Vinayak Deshpande & Mark Ferguson, 2017. "Do Bags Fly Free? An Empirical Analysis of the Operational Implications of Airline Baggage Fees," Management Science, INFORMS, vol. 63(10), pages 3187-3206, October.

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