Airline Consolidation Research Articles

The effect of airline dominance on airport performance: Empirical evidence from medium-sized European airports

The air transport industry is a competitive and volatile market, creating a challenging operating environment for both airports and airlines. While airline market structures are rapidly changing, airports are in a continuous need to improve their technical efficiency. Therefore, in this paper, we examine the effect of airline dominance on airport technical efficiency. Previous research is contributed by examining this effect on a balanced panel dataset of medium-sized European airports while considering the effect of the macro-environment, ownership, belonging to an airport group, and the network structure of the dominant carrier (LCC or FSC). Results demonstrate a significant positive relationship between airline dominance and the airport's technical efficiency. The paper has an important policy implication as it highlights the importance of taking into account efficiency effects at airports when evaluating airline consolidation cases.

Post-Pandemic Perspectives of the Global Civil Aviation

The impact of the COVD-19 pandemic on the air transport industry is huge. It is an unimaginably difficult time. The result is a significantly lower demand for air travel for far longer than predicted when the pandemic began. Most people believed the pandemic and economic situation would be improved by 2021, but as it seems, it will not. Some old airline names are likely to vanish. But, which will emerge from the pandemic in the stronger position? Could it be legacy carriers or low-cost carriers? There will be an increase in the number of airlines that require state report. Today, like the 1930s, most borders are effectively closed and despite some pent-up leisure demand, there is widespread reluctance to fly, for health safety reasons. As a result, we will have a very different shaped air industry in the medium term, where legacy airlines will have to adapt to the loss of premium traffic on which they have previously relied. Meanwhile, for many airlines, it will be a matter of how long can they “hold their breath”. A majority of airlines are going to be smaller than they are today once the coronavirus pandemic subsides. Most airlines around the world are accelerating fleet retirements, producing a fundamental reset of capacity. In this environment, the global network reach of alliances becomes more important. What will be the platform for the future growth? The air industry will confront an environmental climate even tougher than before, government involvement is inevitably going to increase, we will have to learn to live with the virus, international cooperation is very important. We will see a fundamental change in air industry. The airline industry itself has got to shrunk. Airline consolidation is inevitable. Keywords: Air Industry, Corona-Crisis, Global Aviation.

The development of transfer passenger volumes and shares at airport and world region levels

Many air travelers have to change planes. Knowledge on transfer passengers and shares at airport to worldwide levels can be useful industry, policy and research questions. However, as such data is usually not disclosed publically, the structure of transfer volumes and shares has not yet been studied in greater detail. This leaves a research (data) gap which this paper intends to close to some extent. More precisely, we aim at assessing: How total transfer passenger volumes have developed, at worldwide and world region levels; how these relate to the volumes of directly flying passengers; the leading transfer airports in absolute and relative sense; and how the latter have changed over time. We present a methodology to calculate transfer passengers from segment passenger split data provided in the “leg flow” statistics module of a global air transport statistical database which consolidates passenger booking data and estimates from various sources. Departing passenger numbers at the airport level are split into local, beyond, behind and bridge passengers, of which only the latter two count as transfer passengers. The transfer share of an airport is then calculated as the sum of this airport’s behind and bridge passengers divided by all departing passengers. Applying this methodology, we estimate transfer passenger numbers and shares for all airports and world regions for the period 2002-2018. The results indicate a declining importance of transfer passengers at the global level; rising transfer volumes and shares in the Middle East region and China, driven by the growth of emerging ChiBoGu (China, Bosporus, Gulf) carriers; decreasing transfer passenger numbers in the U.S., probably due to airline consolidation and hub downsizing activities in the 00s. Finally, key hubs in cities with less touristic appeal like, e.g. Atlanta or Doha, seem to achieve higher transfer shares than gateway hubs in high-profile destinations like Dubai or New York.

The United States Airline Industry & Antitrust Enforcement: Has Airline Consolidation Paid Off for Consumers?

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A Tale of Two Cities: The Impact of Airline Mergers and Consolidation at London and New York

This paper considers the changes to airline networks, service patterns, and competition that have taken place as a result of recent airline mergers on both sides of the North Atlantic as well as through transatlantic alliances. Capacity, frequency and the competitive position are studied at London and New York with the use of schedule data within different markets in which measures of market concentration are evaluated. International Civil Aviation Organization data is employed to examine load factors on international routes, and UK Civil Aviation Authority data to consider the distribution of traffic between airports in London. It is shown that the effectiveness of the hubs has increased, with enhanced efficiency for surviving airlines, through fewer competitors, an enlarged network and greater control of capacity. Potential concerns are identified however, regarding passenger choice, pricing, and service options that suggest the industry is moving toward an oligopoly. Smaller cities are also seen to be the losers from consolidation with slot divestments favoring increased service in the dense markets, with many regional links being axed altogether. The paper supplements the literature on airline consolidation, with a particular focus on the two biggest markets in the world—London and New York—which demonstrate some similar but also some different issues. Both airline network impacts and choice, and service for local consumers are considered.

Do Size, Debt, Liquidity, Capital Structure, and Capacity Affect Performance in the Airline Industry? -Legacy Versus Low-Cost Carriers

Ever since airline deregulation in the late seventies, airlines have been operating in a tough environment perpetuated by exogenous forces faced by no other industry. Oil price volatility, calamitous events, such as the terrorist attacks of September 11, bird flu, consumer preference, disposable income, the financial crises of 2008-2009, airline consolidations, and the emergence of new carriers have all played their part in creating a very challenging landscape through which airlines have to navigate on a day-to-day basis. This article addresses whether there exists a relationship between an airline’s size, debt, liquidity, asset structure, and capacity utilization with its performance. Using associational inferential statistics together with an independent t-test, the results show that while, all these variables contribute to a usable model, only liquidity and capacity utilization are statistically significant. Furthermore, the results of this study show that there is no significant difference in performance between legacy and low-cost carriers.

A drive for better air service: How air service imbalances across neighboring regions integrate air and highway demands

Between 2000 and 2010, newly merged U.S. airlines decreased service to airports in small and mid-sized metropolitan regions, opting to consolidate their operations at high-value airport hubs (passenger transfer points). At this point travelers living in small and mid-sized regions likely began leaking, or abandoning their local airport to take flights from hub airports offering more convenient flight options. The extent of this practice, however, is not well established. Our study asks to what extent airline consolidation deepened the divide in service levels between airports that are 100–300 miles apart, and seeks to estimate the magnitude of air traveler leakage at small and medium airports across the U.S. We estimate that travelers living in small and mid-sized metropolitan regions have the incentive to “leak” from their airport to a distant, better-served airport. Our estimates suggest that 15.7%–31.8% of the total passengers living proximate to a small or mid-sized airport have the incentive to leak. Our estimates range from 10.8% to 33.0% for travelers facing a non-stop itinerary from their local airport and 33.3%–85.1% for travelers facing a connecting itinerary. The potential leaked passengers contribute 1–2.75% of average daily highway traffic at heavily congested portions of the interstate highways connecting airports and up to 10–12% of traffic on low density portions of the highway. Our study illustrates the relationship between interregional surface transportation and the aviation system by estimating the number of travelers who may choose to travel long distances by car to access a relatively busier, larger airport with better service. The results of this study help to shape the evolving role of airport managers in controlling demand and delay at major hub airports and in building and managing air service and smaller airports across the U.S.

Organizational learning, operating costs and airline consolidation policy in the Chinese airline industry

This study investigated and reviewed organizational learning in the Chinese airline industry, which is dominated by state-owned or state-controlled airlines. This empirical research focused on the extensive scale of airline mergers and acquisitions among 12 Chinese airlines for the period of 1996–2014. This research aims to make a contribution towards addressing the general lack of academic reflection on the impact of organizational learning on airline performance during and after the completion of mergers and acquisitions. The empirical findings of this paper suggested that there was, in general, organizational learning experienced by Chinese airlines from their prior operating experience in improving operating costs. However, airline mergers in 2001/02 increased airlines' average operating costs, as most state-owned airlines are notorious for poor cost management. Significantly, the performance improvement among Chinese airlines was found during the post-merger periods in this study, and the increase in Chinese airlines’ operating costs during the post-acquisition periods due to the limited integration of 2010 acquisition compared with the 2001/02 mergers.

Delivering the Benefits? Efficiencies and Airline Mergers

The merger of US Airways and American – a deal that will create the largest domestic passenger airline – will be a watershed for antitrust enforcement involving commercial aviation. It is the first contested case in which arguments that the merger would be likely to adversely affect competition and consumers drew upon direct evidence of higher fares and service cutbacks in previous airline mergers. This evidence bolstered the case made by the U.S. Department of Justice (DOJ), along with seven states and the District of Columbia, to enjoin the merger.2 US Airways-American, on the other hand, focused much of their response to the government’s Complaint on how the combination would produce substantial efficiencies, in the form of cost savings and consumer (“network”) benefits.Now that a settlement between the DOJ and the airlines has been reached, the opportunity for the court to explore US Airways-American efficiencies “defense” has passed. That process would likely have relied, in part, on direct evidence of whether promised efficiencies in previous airline mergers actually materialized.4 Indeed, if prior mergers had produced the predicted cost savings and network benefits, other things being equal, airline fares should be lower and consumers the beneficiaries of greater “connectivity.” But mounting evidence indicates that this is not the case.5 Moreover, public backlash to previous mergers is significant, as reflected in criticism of protracted system integrations, service cutbacks, and the deteriorating quality of commercial passenger service.This AAI White Paper explores these issues by examining the record on efficiencies that were promised in previous airline mergers. It goes the extra step to ask whether past mergers created inefficiencies that impose costs on consumers. The paper begins with a brief overview of how efficiencies are treated under the recently revised, 2010 U.S. Department of Justice (DOJ)/Federal Trade Commission (FTC) HORIZONTAL MERGER GUIDELINES (GUIDELINES).6 Next is an analysis of the types of efficiencies that are typically projected in airline mergers. The paper then frames and answers a number of key questions: (1) How do the actual costs of integrating systems in previous mergers of hub-and-spoke network airlines compare to predicted costs? (2) What can be said about whether network benefits such as increased “connectivity” projected in previous mergers have materialized? (3) Do mergers of large hub-and-spoke network airlines produce inefficiencies that impose costs on consumers? The final section draws conclusions and offers some insight into the implications of the recent US Airways-American settlement for airline efficiencies analysis. Major themes that emerge from the analysis include: Skepticism about projected efficiencies has likely caused airlines to load most of their projected efficiencies onto consumer (network) benefits, which are harder for antitrust enforcers to verify. System integration (e.g., integrating reservation and IT systems and combining workforces) in some past mergers has been difficult, protracted, and more costly than what was predicted by the airlines. Promises of network benefits involving increased “connectivity” in past mergers appear not to have fully materialized. Airlines cut airport-pairs from their systems after their mergers. Changes in carrier-caused delays since the last wave of airline consolidation emphasize the importance of further examining whether more intensive, merger-induced “hubbing” has exacerbated congestion. Expensive system integrations, loss of connectivity, and increased network congestion in the wake of previous airline mergers imply that promised efficiencies were overestimated, have not materialized as predicted, and potentially create inefficiencies. These effects limit cost savings and the potential for lower fares, shrink consumer benefits, and impose additional costs on consumers. In the event future airline mergers are proposed, antitrust enforcers should significantly discount predicted efficiencies and “net” estimated merger- induced inefficiencies from the carrier’s predictions.

Domestic air service development in the stagnant US market

Over the past decade the US airline industry has transformed itself from a highly fragmented marketplace with excess capacity, redundant hubs and high operating costs into an oligopoly that practises capacity constraint to increase ticket prices while enjoying lower operating costs that resulted from the synergies realised through bankruptcies and airline consolidation. Now that the US airline industry has matured to the level on the product lifecycle where growth is virtually non-existent and competition between airlines has become more limited, the number one question US airports have is: how can airports ensure passenger traffic growth through successful development of new air service and the strengthening of existing air service? This paper provides an insight into how and why airlines make route-planning decisions and what airports can do to improve the appeal of their market to better attract airlines.

Airline Consolidations and Competition Law—What Next?

Airline Consolidations and Competition Law—What Next?

Airline Alliances and their Influence on Firm Performance

Literature on airline partnerships is growing, and has thus far mostly dealt with the price effects of airline consolidation. There is no clear consensus, though, whether the alliances on international markets do bring benefits to the member companies. Therefore the paper focuses on examination of the effects of alliances on size-indicators of airlines based on the panel data analysis of data from 65 air-operators 14 of which are members of one of the three major alliances (Star Alliance, SkyTeam, OneWorld).Panel data analysis examines the influence of alliance membership on turnover, total assets, and number of employees. Source data are taken from the Amadeus database, and reflect 10-year time series of 2003-2012. Calculated values of determination coefficients prove a very strong impact of an alliance membership on turnover and total assets, and relatively strong impact on the number of employees of a particular allied company.

On sources of market power in the airline industry: Panel data evidence from the US airports

A firm can obtain market power through its dominant position on the product market, or via control of a key resource. In particular, it has been argued that airport dominance is a more important source of market power in the US airline industry than route dominance. We examine this contention by analyzing a seventeen-year panel of airport-level prices in the United States. We demonstrate that even though on average airport-level concentration appears to be the strongest source of market power, concentration on routes originating at an airport is the strongest predictor of price levels for the sub-set of large and medium hub airports. There is little evidence that either airport or route dominance significantly affect prices in the sub-sample of medium and small hub airports. There is also little evidence that an airport’s dominant carrier exerts market power beyond the level predicted by the airport or route dominance. Our results imply that consumer welfare losses due to airline consolidation can be concentrated in smaller communities, and related to changes in airport-level concentration. We provide a simple evaluation of the possible effects of two recent and one projected mergers (Delta-Northwest, United-Continental, and American-US Airways) in light of this finding, and suggest that the former consolidation event can potentially lead to non-trivial consumer welfare losses to travelers in over 30 small communities.

Airline consolidation and the distribution of traffic between primary and secondary hubs

Several airline consolidation events have recently been completed both in Europe and in the United States. The model we develop considers two airlines operating hub-and-spoke networks, using different hubs to connect the same spoke airports. We assume the airlines to be vertically differentiated, which allows us to distinguish between primary and secondary hubs. We conclude that this differentiation in air services becomes more accentuated after consolidation, with an increased number of flights being channeled through the primary hub. However, congestion can act as a brake on the concentration of flight frequency in the primary hub following consolidation. Our empirical application involves an analysis of Delta's network following its merger with Northwest. We find evidence consistent with an increase in the importance of Delta's primary hubs at the expense of its secondary airports. We also find some evidence suggesting that the carrier chooses to divert traffic away from those hub airports that were more prone to delays prior to the merger, in particular New York's JFK airport.

The evolving landscape of Chinese aviation policies and impact of a deregulating environment on Chinese carriers

This paper examines the recent developments of China’s aviation polices focusing on airline consolidation, the opening up of the domestic aviation market, and the adoption of more liberal international aviation policy. It then goes onto assess the impacts of the above policies on the industry structure, the performance of major airlines, and the competitiveness of Chinese airlines in international markets. The study shows that the industry became more competitive following the opening up of the domestic aviation market. Although major airlines saw an increase in passenger volume and an improvement in load factors, the falling yield and rising costs make them difficult to grow profitably. Moreover, Chinese airlines largely failed to capitalise on building an international network and the majors were weak in international competition. Strategic use of aviation policy to build a strong and profitable airline industry is still a formidable task lying ahead for policymakers.

Airline Alliances, Antitrust Immunity and Market Foreclosure

This paper examines the issue of market foreclosure by airline partnerships with antitrust immunity. Overlapping the data on frequency of service and passenger volumes on nonstop routes on the transatlantic airline market with the information on dynamics of airline partnerships, we find evidence consistent with the airlines operating under antitrust immunity refusing to accept connecting passengers from the carriers outside of the partnership at respective hub airports. When an airline partnership is granted antitrust immunity, airlines outside this partnership end up reducing their traffic to the partner airlines’ hub airports by 2.6-8.5 percent (depending on the specification and estimation technique involved). Our results suggest ambiguous welfare effects of antitrust immunity on some markets, where previous studies indicated airline consolidation should benefit consumers.

Using Online Data to Explore Competitive Airline Pricing Policies

Since the mid-2000s, the airline industry has seen volatile fuel prices, a record number of carriers ending service, and a merger between two major airlines. In a time of such turmoil in the industry, it is increasingly important to understand the relationship between airline consolidation and competitive pricing policies, because this relationship directly affects the formation of new airline policies associated with competition policy (antitrust), deregulation, and mergers. However, there is a lack of consensus about market concentration and its influence on airfares, mainly because of data limitations of past research. Given the emergence of online booking engines, there is a new opportunity to collect detailed fare data. This project uses disaggregate online airfare data to study the relationship between market concentration and pricing policies. The data set includes 62 markets that cover a broad range of market structures. A case study approach is used to analyze the data. Using disaggregate fare data, this study finds low price dispersion can be associated with both low and high levels of market concentration. As the day of departure approaches, price dispersion is observed to increase or decrease, depending on the market. Additionally, peak and off-peak periods demonstrate different pricing strategies. Markets with codeshares sometimes exhibit unusually high price dispersion.

China’s airline consolidation and its effects on domestic airline networks and competition

Air transportation in China has experienced tremendous growth and major reforms in the past three decades. While there is a large literature on airline liberalization, publications about China are limited. As China transforms from a centrally planned economy to a market economy, how closely has China followed the practice of liberalizing the airline industry seen in other countries around the world? This paper offers a review of air transportation development in China and compares China’s approach with other countries. In particular, this study examines the impact of the government-led airline consolidation of 2002 upon domestic network structure and competition.

China's airline deregulation since 1997 and the driving forces behind the 2002 airline consolidations

This paper describes events in the last decade in China's airline markets and clarifies some misunderstandings in regard to the 2002 airline consolidations that brought sweeping changes to that country's aviation markets. Some possible reasons for the 2002 consolidations are inferred through analysing the data and facts of the late 1990s and early 2000s. We conclude that the consolidations may be a natural response to the changes that accompanied airline deregulation in China.

Price effects of airline consolidation: evidence from a sample of transatlantic markets

We offer an analysis of price effects of airline consolidation on a sample of transatlantic markets. While joining airlines’ networks through code-sharing decreases interline fares by up to 22.5% relative to those of non-consolidated carriers, and alliance membership also produces cost savings that decrease fares by up to 10%, antitrust immunity has no significant price effect for interline trips. Evidence that antitrust immunity increases fares on non-stop routes where it decreases competition is not robust. While total effect of airline consolidation on interline fares is about the same as indicated by previous studies, we suggest different sources of this effect. This paper is the first one presenting empirical evidence of no significant price effects of antitrust immunity.