Airline schedule recovery after airport closures: empirical evidence since September 11.

• Author: Rupp, Nicholas G.

"Last week I announced a crackdown by special agents of the FAA and DOT's Inspector General focused on lapses in the security system currently operated by the airlines. Since then we have stopped flights; closed, searched and reopened concourses at nine major airports; and emptied airplanes to re-screen all passengers when we found that the airlines' security screeners had not followed proper procedures." (U.S. Transportation Secretary Norman Mineta, November 5, 2001).

1. Introduction

   Airport security has attracted considerable attention since the terrorist attacks of September 11, 2001. Subsequent audits of airport security by the Office of Inspector General have revealed numerous security shortcomings that have resulted in frequent airport and terminal closures. For instance, in the six months following September 11, 156 terminal or concourse evacuations in U.S. airports led to 2395 flight delays or cancellations (Power 2002). Because of airport security concerns, President Bush signed into law the Aviation and Security Transportation Act on November 19, 2001, shifting the burden of airline passenger security screening from private companies to the newly created Transportation Security Administration (TSA). One year later, the TSA had deployed federal screeners at all 429 U.S. commercial airports.

   The purpose of this article is to determine how carriers make flight operations decisions following security-related airport and terminal closures. There are a number of potentially competing objectives that the airlines could consider when determining how to best resume operations after a large-scale unanticipated shutdown. First, carriers could maximize revenue by providing better service on higher revenue flights. This could involve avoiding cancellations of such flights to minimize short-term refund expenditures, or reducing delays to diminish the chance of disgruntlement and potential carrier switching of high revenue passengers. Second, airlines could minimize the number of passengers who are adversely affected by the closure, and as a result possibly consider switching carriers, by providing better service for larger planes. Third, more competition among carriers at the route or airport level might bring about better service. Fourth, airlines may opt to restore the flight network as quickly as possible by providing better service for flights to or from their hubs.

   Closures resulting from security concerns, and subsequent reopenings, serve as a natural experiment for studying how airlines recover flight schedules. Because the airline industry is highly capital intensive, carriers seek to minimize time spent on the ground. For instance, the typical time at the gate between flights for a Southwest Airlines plane is just 20 minutes. A single cancellation or extended delay can cause ripple effects throughout the rest of the day. Even a short closure, therefore, is bound to result in some delays. Furthermore, security issues can keep airports closed for hours, forcing hundreds of flight cancellations.

   Airport closures are thus costly for airlines because of losses in both revenue and consumer goodwill, to the extent that airlines are blamed. Suzuki (2000) proposes a theoretical model, calibrated with aggregate U.S. Department of Transportation (DOT) data, which suggests that passengers switch airlines after experiencing a flight delay. If passengers are more likely to switch carriers after experiencing a flight delay or cancellation, then airline losses may extend beyond the immediate impact of the event. (1) As a result, when closures occur, flight operations personnel are under pressure to make real-time cancellation and delay decisions that will return the airline to the original schedule as quickly as possible upon reopening. In addition, information on how the aviation system as a whole recovers and which of these four airline schedule recovery hypotheses holds after a high-profile disruption in service might be useful for policymakers. (2)

   This work is the first to empirically examine service quality during irregular operations. (3) Several related studies have investigated flight delays and cancellations under normal operating conditions. Mayer and Sinai (2003a) find that in a given airport, hub carriers experience longer flight delays than nonhub carders, and attribute this to the clustering of flights around peak travel times by hub airlines attempting to minimize passenger wait times between flights. They also report longer delays for hub destination flights, though this is smaller than the hub origination effect, as well as better on-time performance in more concentrated airports. Brueckner (2002) posits a theoretical model in which airports with one dominant carrier have fewer delays because the dominant carrier acts as a monopolist and fully internalizes the costs of airport congestion. He also presents empirical results that support this prediction and indicate that delays are more frequent for flights originating in carriers' hubs. Mazzeo (2003) reports more frequent and longer arrival delays on airline routes served by monopolists. Rupp, Owens, and Plumly (2005) find that hub carriers have both more frequent and longer arrival delays. Rupp and Holmes (2004) report lower cancellation rates for carriers that offer fewer daily scheduled flights and for flights by hub carriers that travel to and from their hubs. Mayer and Sinai (2003b) also examine flight schedules and find that carriers systematically underestimate travel time. They report that more route competition both slightly reduces scheduled travel time and slightly increases departure delays. At the same airport, hub carriers have longer departure delays than nonhub carriers.

   We examine the impact of three classes of explanatory factors on service quality, in the form of flight delays and cancellations. Following the previously cited literature, we estimate regressions that include economic, competition, and logistical measures at the airport and route level. Our analysis is novel in that, to our knowledge, it is the first to study the impact of potential revenue per flight (formed by multiplying the average one-way airfare by the seating capacity of the aircraft) on service quality. (4) We find a significant positive effect of potential revenue on the likelihood of on-time departure for flights scheduled to depart after the airport reopens. Moreover, the probability and length of delay is significantly lower for higher revenue flights regardless of whether the flight is scheduled to depart during or after the closure. Thus, economic considerations matter to airlines when they attempt to recover flight schedules after a security-related airport or terminal closure. (5) However, holding potential revenue constant, larger planes experience more frequent and longer delays, which likely signifies that the logistical impact of loading additional passengers onto a plane outweighs long-term motivations to minimize the number of passengers who are delayed. We also investigate the link between competition and service quality by considering both route competition (effective competitors on a route) and airport competition (hub airports and airport concentration). In addition, the regressions control for logistical factors at the aircraft, airline, and event level. Logistical variables such as route distance and minutes of closure after a scheduled departure play a role in determining service quality.

   The remainder of the article is organized as follows. Section 2 discusses the data that we analyze. Section 3 outlines our econometric model, and section 4 presents the results of estimating the model. Section 5 concludes the study.

2. Data

   We examine how flight schedules were recovered after 17 security-related terminal closures that took place in the 12 months following the September 11, 2001 terrorist attacks. We identified airport closures by searching the ProQuest General Reference newspaper database (2002), which includes the The Wall Street Journal, The New York Times, and USA Today, using keyword combinations of airport (or terminal) and closure (or closed or shutdown or security breach). For a closure to be included, either the entire airport had to close, as in 11 of the 17 events, or a terminal or concourse closure had to affect 100% of a carder's fleet, as in the other 6 events. (6)

   Table 1 lists various details for these closures. The average closure lasts more than three hours. Most closings are triggered by security breaches, ranging from a sleeping security screener and unplugged metal detectors to a replica grenade found in carry-on luggage and passengers running past security checkpoints. An FBI interrogation of three suspected terrorists closed Chicago's Midway Airport for three and a half hours on September 14, 2001. The three major airports serving New York City closed for several hours on November 12, 2001, as a precautionary measure after an American Airlines Airbus jet crashed shortly after taking off from JFK airport.

   Our data consist primarily of individual flight information from the Bureau of Transportation Statistics (BTS). (7) All carriers with revenues from domestic passenger flights of at least 1% of total industry revenues are required to report on-time performance information for individual flights. Data are thus available for all nonstop domestic flights for the 10 largest U.S. carriers, which accounted for more than 90% of 2001 domestic revenues. (8) Though these 10 carriers are required to report on flight operations in only 32 U.S. airports, each has reported on all domestic operations since 1995.

   For each of the 17 closures, our sample includes every domestic departure scheduled by major carriers from the time the airport closes through the rest of the day (including flights scheduled to depart after midnight), for a total of 2141 flights. About one-fourth of the sample flights were scheduled to depart...