November 24, 2009 / 11:29 PM / 8 years ago

Long flight delays drive down airline stocks: study

NEW YORK (Reuters) - Extensive flight delays irritate travelers, but investors do not like them much either.

A study this summer by researchers who teach at business schools in the United Kingdom and the United States found that airlines stocks tend to drop sharply when flights are delayed two hours or more or are canceled.

That is not only because the industry incurs huge fuel and labor costs by sitting on the tarmac. Delays and cancellations can also lead to a sharp losses in revenue as passengers flock to competing carriers when they make future travel plans.

“Customers make future buying decisions based on the service they experience,” said Kamalini Ramdas, a professor of management science at the London Business School and one of four authors of the study, which has not yet been published.

U.S. airlines have been under fire in recent years for extensive delays and a few particularly egregious events.

Flight delays cost U.S. airlines roughly $9.6 billion in 2008, according to the Air Transport Association.

On Tuesday, the U.S. government fined three U.S. airlines Continental Airlines Inc (CAL.N), ExpressJet XJT.N and Mesaba, a unit of Delta Air Lines Inc (DAL.N), for an incident on August 8 that left passengers stranded overnight in a Minnesota airport because of bad weather.

    “If an airline performs poorly in January, after a month or two it starts to affect sales,” Ramdas said. “The stock price will incorporate the idea that you will lose future revenue.”

    That revenue tends to return after about six months, Ramdas added. The study focuses on delays occurring between January 1990 and December 2006.

    The paper, ‘Can Stock Price Movements Inform Operational Improvements Efforts? Evidence from the Airline Industry,” is based on research done by the University of Virginia and the University of Georgia.

    Through September this year, nearly 19 percent of all flights were delayed, according to the U.S. Department of Transportation, which defines a delay as more than 15 minutes after scheduled arrival.

    Reporting by Deepa Seetharaman; editing by Andre Grenon

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