The market valuation of new route announcements

The market valuation of new route announcements

Journal: Air Transport Management

Author: Dungchun Tsa, Shaochi Chang, WeiWei Chen, Chau-lan Tran

Published: 2008

Abstract

Making use of event-study methodology, we assess how a new route announcement affects an airline’s stock market value. In addition, it verifies that route strategy and entry strategy contribute to the direction and magnitude of the stock market reaction. With respect to route strategy, both opening a new domestic route and announcing multiple new routes achieve the greater financial gain. There are first mover advantages, whereby early entrants gain more than later entrants. Additionally, a pricediscounting strategy contributes to market value. Airlines carrying out specific expansion activities (e.g., aircraft purchases or crew recruiting) have a high the potential for high profits. However, airlines do not benefit from developing alliances to acquire new routes.

Keywords: New route announcements, Market valuation, Route strategy, Entry strategy, Event-study methodology

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