Have Airline Mergers in the United States Reduced Domestic Market Concentration?

The American domestic passenger aviation industry has undergone extensive consolidation through mergers since deregulation. Post-2013, four major United States airlines will carry over 60% of passengers and 71% of revenue passenger miles. Substantial mergers in lightly regulated industries are expected to increase market concentration lead to less competition, establishment of market power and higher prices – all to the detriment of the consumer. Using data available from the Bureau of Transportation Statistics (BTS) for the years 2000 to 2012, the industry appears extremely competitive and unconcentrated at the national level but highly concentrated at the airport pair level. The paper assesses market concentration and power using the Herfindahl-Hirshman Index (HHI). The HHI experienced by the average passenger is ten times higher than for the industry: 99% of origin-destination pairs are considered highly concentrated. The mergers were expected to create many newly highly concentrated markets but the HHI kept falling. The US Airways – America West merger is used as a case study for detailed analysis. Despite this tendency towards monopoly or duopoly service, yields have consistently fallen – even between merging US Airways and America West hubs. The results show an industry where the threat of competition from hit-and-run entry, availability of one-stop substitutes and low-cost carriers has decreased market power and yields despite the extensive mergers. Indeed, mergers may aid competition by offering comprehensive networks. Overall, airline mergers do not present a market power threat and should be encouraged.

• Supplemental Notes:
  • This paper was sponsored by TRB committee AV040 Aviation Economics and Forecasting.
• Corporate Authors:

  Transportation Research Board

  500 Fifth Street, NW
  Washington, DC  United States  20001
• Authors:
  • Schabas, Matthew
• Conference:
  • Transportation Research Board 93rd Annual Meeting
  • Location: Washington DC
  • Date: 2014-1-12 to 2014-1-16
• Date: 2014

Language

• English

Media Info

• Media Type: Digital/other
• Features: Figures; References; Tables;
• Pagination: 17p
• Monograph Title: TRB 93rd Annual Meeting Compendium of Papers

Subject/Index Terms

• TRT Terms: Airlines; Case studies; Competition; Market assessment; Mergers
• Identifier Terms: Herfindahl-Hirschman Index
• Geographic Terms: United States
• Subject Areas: Aviation; Economics; I10: Economics and Administration;

Filing Info

• Accession Number: 01516562
• Record Type: Publication
• Report/Paper Numbers: 14-1457
• Files: TRIS, TRB, ATRI
• Created Date: Feb 28 2014 1:32PM