The Financial Performance of Low-Cost and Full-Service Airlines in Times of Crisis
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
Abstract
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 low-cost airline and compare its accounting and stock performance to two full-service airlines, Continental and Northwest. We find that Southwest's performance was highly superior to that of Continental and Northwest and argue that Southwest's business model, in the eyes of investors, provides the firm with significantly more financial and operational flexibility than full-service airlines. Southwest's lower operating costs, consumer trust, product offering, corporate structure, workforce and work practices, as well as operational procedures are all factors that appear to contribute to Southwest's relative success.
Résumé
The extant aviation literature includes several studies that discuss the advantages and disadvantages of the distinct business models employed by low-cost and full-service (or "legacy") carriers.1 Recent studies by Lawton (2002, 2003) discuss the strategies that both types of airlines have pursued in reaction to the September 11, 2001 (9/11) attacks and outline how those airlines have fared after 9/11. Although Lawton provides a brief review of the airlines' stock performance, his discussion is mostly qualitative in nature. Carter and Simkins (2004) provide a quantitative analysis of the stock performance of a
Triant Flouris, Thomas John Walker. Canadian Journal of Administrative Sciences. Halifax: Mar 2005. Vol. 22, Iss. 1; pg. 3, 18 pgs
Abstract
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 low-cost airline and compare its accounting and stock performance to two full-service airlines, Continental and Northwest. We find that Southwest's performance was highly superior to that of Continental and Northwest and argue that Southwest's business model, in the eyes of investors, provides the firm with significantly more financial and operational flexibility than full-service airlines. Southwest's lower operating costs, consumer trust, product offering, corporate structure, workforce and work practices, as well as operational procedures are all factors that appear to contribute to Southwest's relative success.
Résumé
The extant aviation literature includes several studies that discuss the advantages and disadvantages of the distinct business models employed by low-cost and full-service (or "legacy") carriers.1 Recent studies by Lawton (2002, 2003) discuss the strategies that both types of airlines have pursued in reaction to the September 11, 2001 (9/11) attacks and outline how those airlines have fared after 9/11. Although Lawton provides a brief review of the airlines' stock performance, his discussion is mostly qualitative in nature. Carter and Simkins (2004) provide a quantitative analysis of the stock performance of a