Tuesday, October 19, 2010

Are the Bankrupt Skies the Friendliest?

Posted by D. Daniel Sokol

Federico Cilibertoy University of Virginia and Carola Schenonez University of Virginia ask Are the Bankrupt Skies the Friendliest?

ABSTRACT: We use data from the US airline industry to investigate whether firms that are under bankruptcy protection, as well as these firms' product market rivals, change the quality of the products they offer. We measure the quality of the services offered by a carrier using flight cancellations and delays, and the age of the aircraft used by the carrier. We find that delays and cancelations are less frequent during bankruptcy filings but return to their pre-bankruptcy levels once the bankrupt firm emerges from bankruptcy. We also find that firms use Chapter 11 filings to permanently reduce the age of their fleet. We do not find evidence of statistically and economically significant changes by the airline's competitors along any of the dimensions above.


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