Proceedings of the New York State Economics Association

A Merger Effect on Different Airline Groups

Sora Park

vol. 4, September 2011, p. 117-136

The airline industry has performed inconsistently over the past decades since deregulation in 1978. Primarily, there has been a significant profit discrepancy between legacy airlines and low-cost carriers. Starting from the early 2000s, four of the largest legacy airlines chose to consolidate with one another with an effort to increase efficiency and profitability. In particular, Delta Air Lines and Northwest Airlines have consolidated in 2008, becoming the largest commercial airline in the world. This paper examined the motivation behind this merger as well as the anticompetitiveness concerns arising from this merger. It also analyzed the merger effect on the airfares on top 1,000 U.S. domestic city-pair routes in relation to the number of passengers, the distance, and the market share. All airlines were categorized into three groups - Legacy Airlines, Delta-Northwest, and Low-Cost Carriers - and the interactions between the airfares and the variables were examined within each airline group and across different airline groups. It was found that the airfares of legacy airlines and Delta-Northwest decreased at a faster rate than the low-cost carriers while their market shares increased simultaneously irrespective of whether they offered the lowest prices or had the largest market share on each route.

suggested citation:

Sora Park. "A Merger Effect on Different Airline Groups." Proceedings of the New York State Economics Association. vol. 4, September 2011, p. 117-136

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