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

Kamalini Ramdas (), Jonathan Williams () and Marc Lipson ()
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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

Manufacturing & Service Operations Management, 2013, vol. 15, issue 3, 405-422

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.

Keywords: econometric analysis; empirical research; service operations; quality management; OM–finance interface (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormsom:v:15:y:2013:i:3:p:405-422

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