Review of Industrial Organization 16: 41–51, 2000.
© 2000 Kluwer Academic Publishers. Printed in the Netherlands.
Industry Update: Airlines
JAMES W. BROCK
Department of Economics, Miami University, Oxford, OH 45056, U.S.A.
Abstract. Recent developments in the airline industry are notable in three respects. A rising tide
of concentration, which is accelerating and expanding through a proliferation of “alliances” among
major carriers at home and abroad; a recurring resort to predatory pricing by the majors which con-
tinues to subvert competition by low-cost independents; and an intensiﬁcation of the tacitly collusive,
noncompetitive pricing behavior expected to emerge in such a highly concentrated structural milieu.
Key words: Airlines, alliances, monopoly, predatory pricing.
I. Escalating Concentration
At the national level, the Big Five carriers – Delta, United, American, U.S. Air-
ways, and Northwest – collectively account for two-thirds of all U.S. passenger
enplanements, a marked increase over the 56 percent ﬁgure a decade ago
I). Three pairs of marketing and operating “alliances” disclosed in 1998 among the
country’s six largest carriers – Delta with United; American with U.S. Airways;
Northwest with Continental – will, if completed, raise concentration at the national
level even further, with the resulting Big Three groupings collectively accounting
for nearly three-quarters of U.S. air travel (Table II) (Anderson, 1998; U.S. GAO,
At the same time, the share of the independent segment of the industry, com-
prising low-cost carriers which have exercised disproportionately large downward
competitive pressure on air fares (Department of Transportation, 1996), has steadily
declined. Although Southwest, the largest of the independents, has grown in terms
of its national share, the combined share of the remaining independents has dropped
from 29.4 percent in 1987 to 13.8 percent. By one count, 41 of the 58 new airlines
licensed to ﬂy in the U.S. since 1989 have since ceased to operate (Zuckerman,
At regional and local levels, concentration is even higher, exhibiting monopoly
and tight oligopoly at many of the Nation’s largest airports (Tables III and IV).
Globally, the majors appear to be extending and replicating their dominance of
the American market through a proliferation of “joint ventures,” “alliances” and
For an account of the concentrating effect of airline mergers during the 1980s, see Adams and