A Price for Delays: Price-quality Competition in the US Airline Industry

We assess effects of service quality competition, in terms of delays, in the US airline industry. We utilise delays along a route to evaluate the effect of endogenous and exogenous service quality dimensions on fares. While both endogenous and exogenous delays are found to have an effect on ticket prices, the magnitude is larger for the latter. One additional minute of weather delay decreases average fares by between $4.46 and $6.55, while an extra minute of carrier delay results in a $2.70 to $5.13 price decrease. Airlines are not always penalised by passengers for delays that are within their control.