Abstract
Over the years since airline deregulation five of the remaining U.S. legacy carriers lost money on mergers that cost them a total of $29.6 billion. The combined market cap of these carriers at the end of 2007 was $15.5 billion. In other words, their return on merger investments was -48%. Why? Two very different answers emerge from the study of this record. The first one is purely subjective: Airlines are such a sexy business investors can't resist it. The second one is more objective: The bigger a legacy carrier gets the more it's exposed to the downward pricing pressure exerted by low cost carriers.
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