According to Airlines for America, there have been approximately 51 airline mergers/acquisitions since 1930. Although this is not necessarily a verifiable number, it does show the magnitude of the consolidations that have taken place in the passenger airline industry. Probably the most significant combinations of carriers began in 2009 with Delta and Northwest, followed by United and Continental in 2010, Southwest and Airtran in 2011, and American and U.S. Airways in 2013. These four “mega-carriers” account for approximately 80 percent of all domestic airline passengers today.

The Airline Deregulation Act of 1978 was intended to open the passenger market to new entrants to increase the level of competition. Since then, however, there have been no new entrants into the traditional hub-and-spoke airline market. While there have been a few successful entrants into the market (for example, Southwest), they were point-to-point airlines that did not compete against the legacy hub-and-spoke carriers (for example, United).

QUESTIONS

1. Based on publicly available data, compare the four mega-carriers across the following characteristics:

a. Number of aircraft by type;

b. Number of employees;

c. Departures;

d. Revenue passengers;

e. Revenue passenger miles;

f. Available seat miles;

g. Operating revenue (total);

h. Operating revenue per seat mile;

i. Operating profit.

2. Knowing the intent of the Airline Deregulation Act of 1978, explain why the number of passenger airlines in the industry has actually decreased. Be sure to include a discussion of barriers to entry in your explanation.

3. With the total U.S. market being oligopolistic in nature and at some hubs monopolistic, should the federal government take steps to impose economic regulation on the passenger airlines again? Explain your opinion.

4. In your opinion, why did the Justice Department allow such consolidations to take place?