Rapid capacity expansions and failure: A trap for new airline?

• Main Authors: FAN, Terence Ping Ching, TAN, Alex Tai Loong, GENG, Xuesong
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2014
• Subjects: capacity; expansion; airline; entrant; failure; survival; Strategic Management Policy; Transportation
• Online Access: https://ink.library.smu.edu.sg/lkcsb_research/4599; https://doi.org/10.1016/j.tre.2013.11.002
• Institution: Singapore Management University

This paper investigates whether fast capacity expansions as a means to narrow cost differentials between a de novo airline entrant and established incumbents helps or hinders the survival of the entrant. Evidence from a longitudinal sample of new entrants in the European passenger airline industry showed that these firms exhibited higher failure risks after rapidly expanding capacity. Further, high product market overlap with an established incumbent reduced the probability of new entrants undertaking such expansions, in turn reducing the probability of failure.