Effect of Weather Delays on Shareholder Value: Evidence From the Airline Industry

Information Technology System Failure and Value of Airlines: a Case Study of Airlines in 2016

“…Equation 1is estimated in the empirical literature through ordinary least squares (See Jarrell and Peltzman (1985), Hoffer, Pruitt and Reiley (1998), Wood and Gokhale (2018), Gokhale et al (2014) and Gokhale and Raghavan (2015)) under the assumption that any new information pertaining to the value of an asset is immediately factored into its price. In other words, this model assumes that the financial markets are efficient.…”

“…In the auto industry, fixes proposed by manufactures through recalls suggest a significant decline in sales, loss of reputation and firm value (as an illustration, see Davidson and Worrell, 1992;Kini, Shenoy and Subramaniam, 2013;Gokhale et al, 2014b andRaghavan, 2015). However, it may not be logical to compare a differentiated oligopoly such as the auto market with the more concentrated passenger airline sector, in which travelers may not have as many options to buy the product due to constraints on schedules, airports, corporate tie-ups and sunk costs from frequent flier relationships or credit card relationships.…”

“…Situations in which there is ice on the runway may lead to disruptions in take-off and landing and leads to a chain reaction of delays and/ or cancellations of flights. Gokhale and Raghavan (2015) study the effect of weather delays on airline firm value and find that the loss of revenue that results from such delays/ cancellations reflects on the firm value only if the delays are sustained over relatively longer periods of time. Another reason that could lead to a loss of airline firm's market value could be catastrophic events such as 9-11.…”