Coordinated Capacity Reductions and Public Communication in the Airline Industry

64 Pages Posted: 27 Feb 2020

See all articles by Gaurab Aryal

Gaurab Aryal

University of Virginia - Department of Economics

Federico Ciliberto

University of Virginia - Department of Economics; Centre for Economic Policy Research (CEPR)

Benjamin T. Leyden

Cornell University - Dyson School of Applied Economics and Management

Multiple version iconThere are 4 versions of this paper

Date Written: 2020

Abstract

We investigate whether legacy U.S. airlines communicated via earnings calls to coordinate with other legacy airlines in offering fewer seats on competitive routes. To this end, we first use text analytics to build a novel dataset on communication among airlines about their capacity choices. Estimates from our preferred specification show that when all legacy airlines in a market discuss the concept of "capacity discipline," they reduce offered seats by 1.79%. We verify that this reduction materializes only when airlines communicate concurrently, and that it cannot be explained by other possibilities, including that airlines are simply announcing to investors their unilateral intentions to reduce capacity, and then following through on those announcements. Additional results from conditional-exogeneity tests and control function estimates confirm our interpretation.

Keywords: airlines, communication, capacity discipline, text data

JEL Classification: D220, L130, L410, L930

Suggested Citation

Aryal, Gaurab and Ciliberto, Federico and Leyden, Benjamin T., Coordinated Capacity Reductions and Public Communication in the Airline Industry (2020). CESifo Working Paper No. 8115. Available at SSRN: https://ssrn.com/abstract=3544501

Gaurab Aryal (Contact Author)

University of Virginia - Department of Economics ( email )

P.O. Box 400182
Charlottesville, VA 22904-4182
United States

Federico Ciliberto

University of Virginia - Department of Economics ( email )

P.O. Box 400182
Charlottesville, VA 22904-4182
United States

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Benjamin T. Leyden

Cornell University - Dyson School of Applied Economics and Management ( email )

Ithaca, NY
United States

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