The Financial Performance of Low-Cost and Full-Service Airlines in Times of Crisis

8830 words 36 pages
The Financial Performance of Low-Cost and Full-Service Airlines in Times of Crisis
Triant Flouris, Thomas John Walker. Canadian Journal of Administrative Sciences. Halifax: Mar 2005. Vol. 22, Iss. 1; pg. 3, 18 pgs

This paper examines the stock and accounting performance of three major airlines in the United States in the aftermath of the September 11, 2001, terrorist attacks. September 11 (9/11) resulted in dramatic changes in the airline industry and had significant implications for the economic gains and future prospects of most airlines. Our study focuses on the stock market's perception of the viability of low-cost versus full-service business models in the aftermath of 9/11. We choose Southwest Airlines as a typical
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Only two other airlines in the United States were also profitable in 2001 : JetBlue and AirTran. Both of these airlines also follow different variations of a low-cost business model. In 2002, Southwest continued to fare significantly better than the full-service carriers. In addition, Southwest's stock held up significantly better than the stock of Continental and Northwest and showed a significantly smaller increase in unsystematic risk after 9/11. Our discussion elaborates on the qualitative aspects that set these airlines apart and drive their performance differences.
Our findings provide empirical support for the qualitative discussion in Lawton (2003). In addition, they help explain the success of JetBlue, which had one of the most successful IPOs in April 2002 despite an otherwise very difficult year for airlines, as documented in Flouris and Walker (2004).
We do not claim that the low-cost model is uniform in the way it manifests in the market. In many ways AirTran and JetBlue resemble younger, smaller versions of Southwest.3 Like Southwest, they fly busy routes between mostly secondary airports or point-to-point between major airports, have a low-cost structure, and emphasize customer service. And while Southwest is based at Dallas' smaller airport, Love Field, JetBlue is based at New York's Kennedy International Airport (JFK) and AirTran in Atlanta's


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