International Mergers and Acquisitions in the Airline Industry

Mergers and acquisitions in the transportation sector are typically explained as attempts to capture economies of scale and scope through shared infrastructure and related cost-saving measures. In the airline industry, the past 15 years have seen an increasing number of international mergers and acquisitions that would have been blocked under prior regulatory regimes. This activity suggests that there are indeed gains from increasing airline size. Such gains may be largely financial in nature. One benefit to a merged airline could be greater market power over particular routes and hubs after merger, as well as improved contract structure and bargaining power in operations, although greater de-regulation and more competition internationally makes these arguments less compelling. In many cases, gains may be unique to specific airlines or operational situations. Thus, the issue addressed in this chapter is whether, in general, increasing the size or scope of airline operations enables them to function more efficiently and whether this effect is sustained across all sizes of airline. More pointedly, the chapter examines whether there exist measurable efficiency gains that can help explain the variety of mergers and acquisitions in the industry.