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

MSOM, Forthcoming

37 Pages Posted: 5 Mar 2011 Last revised: 23 May 2013

See all articles by Kamalini Ramdas

Kamalini Ramdas

London Business School - Department of Management Science and Operations

Jonathan W. Williams

University of North Carolina (UNC) at Chapel Hill - Department of Economics

Marc L. Lipson

University of Virginia - Darden School of Business

Date Written: May 23, 2013

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 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: Operations Management, Abnormal Returns, Airline Industry

Suggested Citation

Ramdas, Kamalini and Williams, Jonathan W. and Lipson, Marc Lars, Can Financial Markets Inform Operational Improvement Efforts? Evidence from the Airline Industry (May 23, 2013). MSOM, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1777250 or http://dx.doi.org/10.2139/ssrn.1777250

Kamalini Ramdas

London Business School - Department of Management Science and Operations ( email )

Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom

Jonathan W. Williams (Contact Author)

University of North Carolina (UNC) at Chapel Hill - Department of Economics ( email )

Chapel Hill, NC 27599
United States

Marc Lars Lipson

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States
434-924-4837 (Phone)
434-243-5021 (Fax)

HOME PAGE: http://www.darden.virginia.edu/faculty/lipson.htm

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