Coordinated Capacity Reductions and Public Communication in the Airline Industry
CESifo, Munich, 2020
CESifo Working Paper No. 8115
We investigate the allegation that 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 the number of offered
seats is 2% lower when all legacy airlines in a market discuss the concept of “capacity
discipline.” We verify that this reduction materializes only when legacy airlines communicate
concurrently, and that it cannot be explained by other possibilities, including that airlines are
simply announcing to investors their unilateral plans to reduce capacity, and then following
through on those announcements.
Industrial Organisation