Can regulation improve service quality? : evidence from European Air Passenger Right

Abstract:

Under EU Air Passenger Rights legislation (“EC261”), carriers must provide assistance and cash compensation to passengers in case of long delay. We study whether the regulation reduces flight delay. EC261 applies uniformly to flights departing from the EU, but covers only EU carriers on EU–bound flights. Exploiting this variation, we find that regulated flights are 5% more likely to arrive on time, and mean arrival delay is reduced by almost four minutes. The effect is strongest on routes with little competition, and for legacy carriers. Thus, consumer rights can improve quality when incentives from competition are weak.