AIRLINE COMPETITION: EFFECTS OF AIRLINE MARKET CONCENTRATION AND BARRIERS TO ENTRY ON AIRFARES

The General Accounting Office (GAO) examined how an airline's market share and barriers to entry affect air fares, then determined what the significance of this is for setting federal policy for the airline industry. To conduct this analysis, GAO developed an econometric model. In terms of direct impacts, the model results indicate that fares are higher on routes when any one of three barriers to entry is present. When slot restrictions were present, fares were, on average, 4% higher. The presence at an airport of a majority-in-interest clause, which often gives an airline veto power over airport expansion, was associated with, on average, 3% higher fares on routes to and from that airport. When a major airline had a code-sharing agreement, which involves joint marketing with a commuter airline, the major airline's fares were, on average, 2% higher on routes involving that airport. Two or more of these barriers are often present together on a route. In such cases, fares were 5 to 9% higher. Other factors also directly influence fares. Airlines with higher market shares generally charge higher prices. The higher the operating costs of the least-cost airline on a route, the higher were the fares of all airlines serving the route. Finally, fares were higher on routes involving more congested airports. In terms of indirect impacts, model results indicate that some competitive factors influence fares by increasing an airline's market share on a route. The effects of several factors on fares are not uniform. GAO found substantially different impacts, depending on the distance of the route, the price-sensitivity of the passenger, and the size of the airline. Because no single factor has a large impact on fares, a policy designed to affect any single factor or entry barrier is not likely to have a large impact on fares across all routes. However, such policies may have a substantial effect on certain kinds of routes or passengers. Policies directed at easing entry into slot-controlled airports, for example, may lower fares more on short-haul routes than on longer routes.

  • Supplemental Notes:
    • Report to Congressional Requesters.
  • Corporate Authors:

    U.S. General Accounting Office

    441 G Street, NW
    Washington, DC  United States  20548
  • Publication Date: 1991-4

Media Info

  • Features: Appendices; Tables;
  • Pagination: 64 p.

Subject/Index Terms

Filing Info

  • Accession Number: 00608590
  • Record Type: Publication
  • Report/Paper Numbers: GAO/RCED-91-101
  • Files: TRIS
  • Created Date: May 31 1991 12:00AM