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

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. The authors 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, the authors treat the carrier's distress as endogenously determined with it. The 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. The authors 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.

Language

  • English

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Filing Info

  • Accession Number: 01768859
  • Record Type: Publication
  • Files: TRIS
  • Created Date: Feb 28 2021 3:20PM