Financial distress, survival network design strategies, and airline pricing: An event study of a merger between a bankrupt FSC and an LCC in Brazil

Renan P. de Oliveira and Alessandro Oliveira

Journal of Air Transport Management, 2021, vol. 92, issue C

Abstract: This paper develops an event study to investigate the airfare effects of the bankruptcy of a financially distressed full-service carrier (FSC) and its subsequent acquisition by a low-cost carrier (LCC) in Brazil. We account for the distressed carrier's survival network design strategies (SNDS) pursued during its reorganization—a suspected source of sample selection bias. Additionally, as rivals' pricing could be aimed at driving the distressed/bankrupt carrier out of the market, we treat the carrier's distress as endogenously determined with it. Our results do not uncover any survival pricing behavior stemming from SNDS, but reveal fiercer price competition from rivals in periods preceding both the distressed carrier's bankruptcy filing and acquisition. We also find evidence of enduring price competitiveness in the long run of the acquisition event, shedding light on the potential facilitating role played by bankruptcy protection regulations in keeping and sustaining market contestability after the bankruptcy-filing period.

Keywords: Airfare; Airline; Acquisition; Bankruptcy; Econometrics; Merger; Network management; Sample selection (search for similar items in EconPapers)
JEL-codes: D22 L11 L93 (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jaitra:v:92:y:2021:i:c:s0969699721000272

DOI: 10.1016/j.jairtraman.2021.102044

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