Long-Distance Airport Substitution and Air Market Leakage: Empirical Investigations in the U.S. Midwest

Following airline mergers and network reorganizations aimed at reducing operational costs, consolidated air services at large hub airports have encouraged air travelers to forego use of their smaller local airports to access large hub airports offering superior air services farther away. This study investigates airport leakage in areas of Wisconsin and Michigan served by small airports, where air travelers may leak to neighboring large hubs. Using a proximity-based service area definition, three airports experiencing leakage are identified, and a hierarchical logit airport choice model is applied that accounts for air service characteristics and access distance for travelers coming from these airports’ service areas. Results show that a similar mean number of flight legs at both the local and substitute (large hub) airports will encourage leakage at Dane County Regional and Gerald R. Ford International airports, indicating that adding direct flights alone will not be sufficient to combat leakage. Comparable access distances to local and substitute airports have opposite effects on the local markets of Gerald R. Ford International and Milwaukee Mitchell International airports—promoting leakage at the former but discouraging it at the latter. Furthermore, proportional increases in airfares at local airports lead to uneven losses of markets in investigated service areas. Overall, the study provides empirical evidence of long-distance airport leakage in parts of the U.S. Midwest, and how its implications can be used by small airports seeking to further understand and respond to travelers’ airport choices within their local markets.

Impact of Airline Mergers on Environmental Externalities

The U.S. airline industry has experienced consolidation in the last decade. At the same time, global environmental concerns have continued to grow. This paper examines the impact of three recent airline mergers on the environment by comparing per-departure NOX emission and the total NOX emission from merging firms at a given airport versus those emitted by non-merging firms at the same airport, by focusing on emissions from airplane flight landing/take-off cycles. The regression results suggest that mergers overall have no impact on either per-departure NOX emissions or total NOX emissions, while some individual mergers resulted in decreased emissions. However, this study finds that mergers have a negative impact on NOX emissions in the medium term when flight destinations are hub airports and a positive impact on NOX emissions in the medium term when flight destinations are non-hub airports.

Market Power and Marginal Cost Effects in Competing Markets: Evidence from Airline Mergers

There are both market power and cost efficiency effects associated with airline mergers. Previous studies, however, have primarily focused on merger price effects, which is the net effect of these two forces. This paper attempts to decompose and measure these effects by using a model that allows us to derive proxies for market power and cost efficiency. In particular, we are interested in merger effects in markets where the merging airlines directly competed prior to their merger. We study two main mergers – Delta/Northwest and United/Continental – and find that both increase market power in markets where the merging airlines competed prior to merger. We also find evidence of marginal cost efficiencies associated with both mergers. These efficiency effects are relatively larger than the market power effects and come from different sources. In the case of the Delta/Northwest merger, efficiencies come from markets where the merging airlines competed prior to the merger, whereas in the case of United/Continental, they come from markets where the merging firms did not compete. The market power effects only stem from markets with pre-existing competition among merging airlines, perhaps due to the elimination of a competitor in those markets. These findings, thus, support the long-standing hypothesis that market power and efficiency are important in motivating horizontal mergers.

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.