Factors Affecting Concentration in the Airline Industry

GAO discussed the impact of deregulation on the airline industry, focusing on: (1) carrier entry into the industry and individual markets; (2) how federal policies have contributed to the trend toward increased airline concentration; and (3) the effects of airline concentration on airline fares and services. GAO found that: (1) deregulation allowed airlines to compete on the basis of fares, opened up the airline industry to new entrants, and allowed existing carriers to expand operations; (2) established carriers responded to deregulation by changing their operating and marketing strategies to increase their market dominance, making it more difficult for new airlines to enter the market; (3) since deregulation, the Department of Transportation has approved 26 airline mergers, based on a policy containing outdated assumptions regarding the ease of market entry; (4) these mergers increased airline concentration, with the 5 largest carriers currently handling 74 percent of travel; and (5) such mergers have not adversely affected service levels, although consumers faced fewer choices and increased fares.