The Impact Of Entry And Competition On Airline Departure Frequency

This paper examines how entry and competition impact departure frequency using data from 1990–2009 on a number of routes served by at least two airlines. The estimated frequency equation indicates that an additional airline at the route level results in a slight decrease in the number of departures despite a substantial increase in passenger traffic since the industry was liberalized in 1995. The results suggest that domestic airlines have shifted to relatively larger aircraft and operate them at higher load factors. The use of larger aircraft operated at higher load factors may indicate their inability to secure additional landing slots, suggesting that investments in air transport infrastructure have not kept pace with demand. Fewer departures indicate that the waiting time between flights has increased, reducing the probability of matching the passengers’ preferred departure times with scheduled flights. The longer waiting time between flights and more congestion inside the aircraft due to higher load factors suggest that the service quality of air transport has deteriorated in the post-regulation period

Factors Affecting Airline Profits: Evidence From The Philippines

This article examines the factors that affect the profits of four airlines in the Philippines. The estimated profit equation indicates that an additional passenger contributes PHP 1,989 to profits, while an additional seat reduces profits by PHP 1,312. The findings indicate that airlines have a strong incentive to fill a seat before departure, justifying the practice of heavy discounting to stimulate passenger traffic during periods of low demand. An additional route reduces profits by PHP 107.736 million, which may indicate that new routes have lower-than-expected passenger traffic. This may also suggest that most profitable routes are already served by at least one airline and entry into existing routes may not be profitable. The 1997 Asian financial crisis, the 2001 terror attacks in the United States, and the most recent global financial crisis, collectively result in PHP 1.391 billion reduction in profits, underscoring the vulnerability of the airline industry to unanticipated events

An Analysis of Delta Air Lines\u27 Oil Refinery Acquisition

Delta Air Lines acquired an oil refinery in April 2012 as a strategic move to hedge against higher fuel prices. Our paper analyzes the oil refinery acquisition, a backward integration strategy, on the airline’s financial and operational performance, for the period Q1 2010 to Q2 2015. The methodology involves descriptive statistics and short-term stock performance as well as an econometric model that estimates the impact of the oil refinery acquisition on Delta Air Lines’ net income. The data set consists of quarterly financial and airline operations metrics data. The results indicate that it is too early to ascertain whether Delta Air Lines’ oil refinery acquisition has any positive impact on its financial performance since the variable of interest is insignificant in predicting Delta Air Lines’ net income. Despite the apparent lack of positive impact of its oil refinery acquisition, however, the stock market has rewarded Delta Air Lines’ strategy resulting in its share prices outperforming the S&P 500 and the XAL, an index of major airline stocks, in the 60-trading day period following the announcement of its acquisition

The U.S. Airways Group: A Post-Merger Analysis

America West Airlines acquired the bankrupt US Airways on September 27, 2005 to form the US Airways Group. Our paper analyzes the post-merger performance of the US Airways Group using airline operating metrics and financial ratios for the period 2005 to 2013. While the airline has still a long way to go to improve its leverage and liquidity ratios, its capital structure and ability to pay its obligations have improved since 2005. Moreover, although the airline is still inefficient in utilizing its assets, the efficiency improvements achieved since the merger have resulted in profits and positive returns to investors. Its share prices have also largely outperformed the S&P 500 and XAL since the merger, an indication that investors are pleased with how the merger is developing over time. In view of the US Airways Group’s improving financial and operating performance, the merger is, essentially, a success

Factors Affecting Airline Profits: Evidence From The Philippines

This article examines the factors that affect the profits of four airlines in the Philippines. The estimated profit equation indicates that an additional passenger contributes PHP 1,989 to profits, while an additional seat reduces profits by PHP 1,312. The findings indicate that airlines have a strong incentive to fill a seat before departure, justifying the practice of heavy discounting to stimulate passenger traffic during periods of low demand. An additional route reduces profits by PHP 107.736 million, which may indicate that new routes have lower-than-expected passenger traffic. This may also suggest that most profitable routes are already served by at least one airline and entry into existing routes may not be profitable. The 1997 Asian financial crisis, the 2001 terror attacks in the United States, and the most recent global financial crisis, collectively result in PHP 1.391 billion reduction in profits, underscoring the vulnerability of the airline industry to unanticipated events

The Impact of Entry and Competition on Airline Departure Frequency

This paper examines how entry and competition impact departure frequency using data from 19902009 on a number of routes served by at least two airlines. The estimated frequency equation indicates that an additional airline at the route level results in a slight decrease in the number of departures despite a substantial increase in passenger traffic since the industry was liberalized in 1995. The results suggest that domestic airlines have shifted to relatively larger aircraft and operate them at higher load factors. The use of larger aircraft operated at higher load factors may indicate their inability to secure additional landing slots, suggesting that investments in air transport infrastructure have not kept pace with demand. Fewer departures indicate that the waiting time between flights has increased, reducing the probability of matching the passengers preferred departure times with scheduled flights. The longer waiting time between flights and more congestion inside the aircraft due to higher load factors suggest that the service quality of air transport has deteriorated in the post-regulation period

Merger Activity and Short-Run Financial Performance in the US Airline Industry

This article examines the announcement and post-merger effects of three US airline mergers—America West and US Airways, Delta and Northwest, and United and Continental. The time series data consist of daily and cumulative abnormal returns using the Standard and Poor\u27s 500 as the benchmark index. The event study methodology uses ±60 trading days around the announcement and merger dates. The share prices of United and America West increased while Delta\u27s decreased due to the slowing US economy at the time of its merger with Northwest. The impact of the merger announcement on target airlines is positive except for Northwest due to the weakening demand for air transport as the US economy faltered at the time of its merger with Delta. The share prices of acquiring and target airlines increased around the merger completion date, suggesting that new information is available as the merger nears completion

Southwest\u27s acquisition of AirTran: an analysis of short-term stock performance

This paper examines the short-term stock performance of Southwest Airlines and AirTran Airways using time series data consisting of daily and cumulative abnormal returns ± 60 trading days around the merger announcement and merger completion dates. The impact of Southwest\u27s announcement to acquire AirTran is positive. The daily abnormal returns of Southwest and AirTran, using the S&P 500 as index, are highly significant on the merger announcement date. The impact of the merger completion is mixed, however. Southwest\u27s share price drifted lower up to the merger date, underperforming the S&P 500, while the share price of AirTran generally drifted higher in a very narrow range. Southwest and AirTran, nevertheless, outperformed the AMEX Airline Index, suggesting that the higher fuel prices at the time of the merger may have influenced investor reaction to the merger, resulting in lower share prices of major airlines. The beta of Southwest improved after the merger announcement and completion of the merger, suggesting shareholder confidence in the merger and in Southwest\u27s financial performance, at least in the short-term

The impact of government failure on tourism in the Philippines

While the Philippines aspires to be one of the top tourist destinations in Southeast Asia, self-inflicted wounds like the failure of the government to comply with international aviation safety standards may derail the country from achieving its goals. This article estimates the short- and long-term impact of the US FAA downgrade of the Philippine civil aviation system in 2008 and the EU ban of Philippine carriers in 2010 on tourist expenditures, arrivals, and length of stay using monthly time series data. The econometric model, consisting of three equations due to the endogeneity of the tourist arrivals and length of stay variables in the tourist expenditures equation, is estimated simultaneously using the generalized method of moments. The results indicate that the US FAA downgrade and the EU ban impact monthly tourist receipts negatively in the short term while the downgrade also impacts tourist expenditures in the long term. Moreover, the ban impacts length of stay negatively in the short and long term while the downgrade impacts length of stay negatively only in the long term. The substantial decline in tourism receipts from 2008 to 2010 despite an increasing trend in tourist arrivals is due to the shorter stay of tourists, indicating that high-spending tourists have not returned following the downgrade and ban

The U.S. Airways Group: A Post-Merger Analysis

America West Airlines acquired the bankrupt US Airways on September 27, 2005 to form the US Airways Group. Our paper analyzes the post-merger performance of the US Airways Group using airline operating metrics and financial ratios for the period 2005 to 2013. While the airline has still a long way to go to improve its leverage and liquidity ratios, its capital structure and ability to pay its obligations have improved since 2005. Moreover, although the airline is still inefficient in utilizing its assets, the efficiency improvements achieved since the merger have resulted in profits and positive returns to investors. Its share prices have also largely outperformed the S&P 500 and XAL since the merger, an indication that investors are pleased with how the merger is developing over time. In view of the US Airways Group’s improving financial and operating performance, the merger is, essentially, a success