Penalties as prices? evaluating airline strategic responses to tarmac delay penalties in the US

• We examine whether tarmac-delay penalties act as a price. • We evaluate the impact of the US tarmac-delay rule on lengthy tarmac delays. • We find that small penalties provide only limited deterrence. We examine whether penalties for lengthy tarmac delays in the US aviation industry deter such incidents or are instead regarded by carriers as an acceptable cost of doing business. Exploiting penalties imposed on marketing carriers for severe-weather tarmac delays as a quasi-natural experiment, we compare changes in taxi-out and taxi-in times, the rate of lengthy tarmac-delay incidents, and cancellation rates between penalized and non-penalized carriers using difference-in-differences and synthetic difference-in-differences estimators. We find modest improvements in operational performance following penalties but also observe, in several cases, no improvements or even adverse changes. Specifically, the deterrent effect of these penalties seems to weaken when they are small relative to carriers’ net incomes. Our results suggest that current penalties provide only limited deterrence and may be perceived by some carriers as an everyday cost of doing business, especially when financial conditions are favorable.