The Effect of Bankruptcy on U.S. Air Fares

Abstract

Borenstein and Rose (1995) find that bankruptcy filing per se does not substantially affect the pricing behavior of the bankrupt carrier. In September 2005, Delta entered bankruptcy and USAir emerged from bankruptcy. We follow Borenstein and Rose (1995) by collecting daily data on air fares for Delta, Southwest and USAir airlines around these events. We find that financially healthy airlines (Southwest in this study) apparently do not respond to bankruptcy events, which is counter to the findings in Borenstein and Rose (1995). We also find that airlines entering bankruptcy (Delta in this study) do not change their pricing strategy in the near-term around the bankruptcy filing and airlines exiting bankruptcy (USAir in this study) price their tickets aggressively.