Changes in the US airline industry’s competitive landscape

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Deregulation in the U.S. airline industry

The Airline Deregulation Act of 1978 removed all regulations governing the airline routes, airfares, entry, and exit of commercial airlines. Earlier, this was controlled by the Civil Aeronautics Board (or CAB). Airfares and all other factors would be determined by demand and supply market forces. After the deregulation, passengers benefited from additional routes through the hub and spoke model. Competition also increased. This lowered airfares. The entry of low-cost carriers brought airfares down even more. Airlines offered no frills services to bring down the cost of operations. For more details on reducing airfares in U.S. airline industry refer to Why low cost carriers influence the industry with low air fares.

Laws and regulations preventing anti-competitive environment

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The recent consolidation in the U.S. airline industry had already reduced the number of top players. U.S. Airways merged with American West, Northwest with Delta (DAL), United (UAL) with Continental, AirTrans with Southwest (LUV), and American (AAL) with U.S. Airways. These carriers, along with JetBlue (JBLU) and Alaska (or ALK), account for more than 90% of the U.S. market share by available seat miles (or ASMs). With consolidation, competition reduced, fares increased, and passengers’ bargaining power decreased.

However, the U.S. Department of Transportation (or DOT) has kept a close watch on the competitive landscape in the airline industry. The government wants to protect consumer interest and prevent monopoly.

In August 2013, the Antitrust Division’s civil enforcement program—that protects and promotes competition along with seven state attorney generals and the District of Columbia—filed a civil antitrust suit to prevent the merger between U.S. Airways and AMR Corp. There were concerns that the merger would disrupt competition in the industry. The merger depended on the sale of slots and gates to low-cost carriers at some major airports.

For more details on the conditions posed by the department for the merger refer to Why the American-US Airways merger was conditional.

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