Gaurab Aryal, University of Virginia
Department seminar. Gaurab Aryal is an assistant Professor at the University of Virginia. He will present a paper entitled "Coordinated Capacity Reductions and Public Communication in the Airline Industry", co-authored by Federico Cilibertoz and Benjamin T. Leyden.
We investigate whether legacy U.S. airlines communicated via earnings calls to coordinate with other legacy airlines in offering fewer seats on competitive routes. Using text analytics, we build a novel dataset on communication among airlines about their capacity choices. Our estimates show that when all legacy airlines in a market discuss the concept of "capacity discipline," they reduce offered seats by between 1.14% to 1.48%. We verify that this reduction materializes only when airlines communicate concurrently, and that it cannot be explained other possibilities, including that airlines are simply announcing to investors their unilateral intentions to reduce capacity, and then following through on those announcements. Additional evidence from conditional-exogeneity tests and control function estimates confirms our interpretation.
Host: Manudeep Bhuller