The financial performance of low-cost and full-service airlines in times of crisis

This paper examines the stock and accounting performance of three major airlines in the United States in the aftermath of the September 11, 2001, terrorist attacks. September 11 (9/11) resulted in dramatic changes in the airline industry and had significant implications for the economic gains and future prospects of most airlines. Our studyfocuses on the stock market's perception of the viability of low-cost versus full-service business models in the aftermath of 9/11. We choose Southwest Airlines as a typical low-cost airline and compare its accounting and stock performance to two full-service airlines, Continental and Northwest. We find that Southwest's performance was highly superior to that of Continental and Northwest and argue that Southwest's business model, in the eyes of investors, provides the firm with significantly more financial and operational flexibility than full-service airlines. Southwest's lower operating costs, consumer trust, product offering, corporate structure, work force and work practices, as well as operational procedures are all factors that appear to contribute to Southwest's relative success.