Rapid capacity expansions and failure: A trap for new airline?

Ping Ching Terence Fan, Singapore Management University
Alex Tai Loong Tan, University of Western Australia
Xuesong Geng, Singapore Management University


This paper investigates whether fast capacity expansions as a means to narrow cost differentials between a de novo airline entrant and established incumbents helps or hinders the survival of the entrant. Evidence from a longitudinal sample of new entrants in the European passenger airline industry showed that these firms exhibited higher failure risks after rapidly expanding capacity. Further, high product market overlap with an established incumbent reduced the probability of new entrants undertaking such expansions, in turn reducing the probability of failure.