Effect of Chapter 11 Bankruptcy Protection on Airfares in the U.S. Domestic Airline Industry

Abstract

I empirically examine the effects of bankruptcy protection (Chapter 11) on airfares in the U.S. domestic airline industry using cross sectional air tickets data from 2001:Q1 through 2012:Q4. A hedonic price model was developed to identify the determinants of airfares. The results indicate that, airfares charged by a bankrupt airline are approximately 4% lower than airfares of other airlines that are not in bankruptcy, ceteris paribus. Individually, bankrupt airlines lower their airfares as much as 16-19% during bankruptcy protection. Furthermore, it is evident that low cost carriers (LCCs) have significantly lower airfares than legacy carriers. This confirms the high degree of price competition in the industry.