Does vertical integration affect firm performance? Evidence from the airline industry

Silke Forbes and Mara Lederman

RAND Journal of Economics, 2010, vol. 41, issue 4, 765-790

Abstract: We investigate the effects of vertical integration on operational performance. Large U.S. airlines use regional partners to operate some of their flights. Regionals may be owned or governed through contracts. We estimate whether an airline's use of an owned, rather than independent, regional at an airport affects delays and cancellations on the airline's own flights out of that airport. We find that integrated airlines perform systematically better than nonintegrated airlines at the same airport on the same day. Furthermore, the performance advantage increases on days with adverse weather and when airports are more congested. These findings suggest that, in this setting, vertical integration may facilitate real‐time adaptation decisions.

Date: 2010
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