Turning Sorrow into Treasured Gold: Airline Complexity and Responses to the Covid Pandemic

Abstract

When firms face sudden and unusual crises, decision-makers need to quickly respond, and these responses have short-term costs and benefits but can also have long-term consequences that alter the strategy. A question of long-standing interest is whether firms with complex assets and production structures will respond slowly because the complexity delays understanding of the best response and reduces ability to implement it. The airline industry responses to the Covid pandemic are ideal for testing this proposition because the industry experienced rapid and sizable reductions in demand, and airlines differ significantly in complexity along easily measurable dimensions. The analysis demonstrates how airline decisions to store, retire, or sell aircraft differed in response to increased state policy stringency as a function of their complexity.