Airline Competition

Effects of Airline Market Concentration and Barriers to Entry on Airfares Gao ID: RCED-91-101 April 26, 1991

Pursuant to a congressional request, GAO reviewed how barriers to entry, airline market shares, operating costs, and airport congestion affected airline fares.

GAO found that: (1) takeoff and landing restrictions caused fares to be an average of 4 percent higher; (2) majority-in-interest clauses caused fares to be an average of 3 percent higher; (3) code-sharing agreements caused fares to be an average of 2 percent higher; (4) when two or more of these barriers were present together on a route, fares were an average of 5 to 9 percent higher; (5) several factors directly influenced fares, including higher market shares, higher operating costs, and routes involving more congested airports; (6) an airline's market share tended to be higher when the airline had a large share of gates at the endpoint airports of the route and when that airline owned a computerized reservation system that was dominant in the endpoint cities; (7) fares and market shares differed depending on distance, passengers' price sensitivity, and airline size; and (8) because no single factor had a large impact on fares, a policy designed to affect any single factor would not have a large impact on fares across all routes, but could have a substantial effect on certain kinds of routes or passengers.

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