Thesis Committee

Vikrant Vaze, Ph.D. (Chair)

Mark Borsuk, Ph.D.

Robert Shumsky, Ph.D.

Abstract

Since 2005, US domestic airline industry has undergone a series of consolidations. The overall effects of these consolidations on air consumers are of considerable interest to researchers and policy makers alike. In this paper, unlike any of the previous studies in literature, we provide a comprehensive assessment of the overall effects of each of the five major recent mergers on the passengers’ welfare as evaluated through consumer surplus changes, starting with the US Airways – America West merger in 2005 and ending with the American Airlines – US Airways merger in 2013. We develop discrete choice models with fare, nonstop and one-stop service frequency, travel time, and other carrier and route attributes as parameters. The consumer surplus, as a function of these parameters, is calculated for each market as the measure of passengers’ welfare. By using the markets not affected by the mergers as a control group, we are able to separate out the welfare effects of mergers from those of other extrinsic factors such as oil price changes, passenger demand changes, etc. Several new insights are obtained. We find that mergers of legacy network carriers with significant proportion of overlapping markets are generally accompanied by flight reallocation and network reorganization, which in turn, contributed to an increase in passenger welfare. However, overall passenger welfare for small communities declined after the mergers. We also find that the welfare gain after mergers of legacy network carriers with significant proportion of overlapping markets progressively decreased as the number of existing major domestic carriers decreased, and that after the most recent mergers, potential any further mergers of legacy network carriers may result in welfare losses.