The pricing and quality effects of network structure choice: Evidence from American airlines’ international route cancellations

Abstract

American Airlines (AA) terminated two non-stop services from Chicago to Beijing and Shanghai, respectively, in October 2018. Using the DB1B database, I study the pricing and quality effects of AA’s network structure switch for the Chicago-China route. In particular, I examine how average fares and on-time performances (OTP) in AA’s three hubs, namely, Chicago (ORD), Dallas/Fort Worth (DFW), and Los Angeles (LAX), would be affected following the route cancellations. The estimation results indicate higher fares and worsening OTP for nonstop flights connecting DFW and ORD but not those connecting LAX. Coupled with AA’s reconstruction plans, these findings may be partly caused by the fact that most international passengers who would depart from ORD are now diverted through DFW instead, given its proximity, which disproportionally drives up the demand and traffic at DFW. My analysis adds to the literature by investigating the impact of network choice of an international market on price and quality provision in the domestic market.