Flight frequency and mergers in airline markets

Abstract

The welfare consequences of airline mergers have been analyzed almost exclusively in terms of ticket price. However, when flight frequency decisions are endogenized in a model, we can estimate measures of the relative importance of price and flight frequency in customer decisions. Hence, in a merger analysis, we can not only predict changes in flight frequency, but also the consequences of those changes on consumer welfare. In this paper, merger simulations suggest that while passenger volume and consumer surplus decrease on the aggregate, some markets benefit from welfare gains once merger-induced changes in flight frequency are factored in.