New evidence on airline mergers : a study on 9 recent U.S. airline mergers.

Abstract

Advocates of airline mergers often cite declining average airfares over the last decade and efficiency gains as defences against anti-competitive concerns. We investigate this contention by examining price changes on 101 overlapped routes of 9 mergers from 1997 to 2011. Noting the absence of research dedicated to the analysis of mergers involving financially-distressed (Fin-D) airlines in recent years, we distinguished between mergers involving airlines that are financially healthy (normal) and mergers involving Fin-D airlines. The results show that airfares of overlapped routes increased after a normal merger but decreased after a Fin-D merger. In particular, we demonstrate that an increase in route concentration leads to an increase in airfares for all mergers. We also find an inverse relationship between the availability of substitutes and change in airfares after a normal merger. In addition, we find surprising evidence that mergers involving Fin-D airlines are fundamentally motivated by the need to restructure rather than to increase market power.

In light of these findings, we strongly propose that the United States Department of Justice place a greater emphasis on analysing the effects of route concentration on airfares for all mergers and reconsider the effect of route distances on airfares when evaluating a normal merger.