AIRLINE 

COMPETITION

The Average Number 

of Competitors in 

Markets Serving the 

Majority of 

Passengers Has 

Changed Little in 

Recent Years, but 

Stakeholders Voice 

Concerns about 

Competition

Report to Congressional Requesters

June 2014

GAO-14-515

United States Government Accountability Office
United States Government Accountability Office

Highlights of GAO-14-515, a report to 

congressional requesters

June 2014

AIRLINE COMPETITION

The Average Number of Competitors in Markets 

Serving the Majority of Passengers Has Changed

Little in Recent Years, but Stakeholders Voice 

Concerns about Competition

Why GAO Did This Study

Since 2007, there have been four 

major airline mergers. As a result of

this consolidation, about 85 percent of 

passengers in the U.S. flew on four 

domestic airlines in 2013. Certain 

industry observers have raised 

concerns that consolidation could have

adverse effects on airline competition, 

such as higher airfares and reduced 

service. Others argue that consumers 

stand to benefit from recent changes in 

the industry as profitable airlines 

reinvest in new planes and expand 

their networks. 

To assist Congress in overseeing 

changes in the airline industry, GAO 

was asked to examine the state of 

competition in the domestic passenger 

airline industry. This report addresses

(1) changes to the financial health of 

the U.S. airline industry since 2007; (2) 

changes to the structure of the market 

since 2007; (3) how consumers have 

been affected by these changes; and 

(4) views of stakeholders on the key 

challenges to airline competition and 

actions the federal government could 

take to address these challenges. 

GAO analyzed airline financial data 

reported to DOT, as well as DOT 

passenger itinerary data from 2007 

through 2012, the latest year available. 

GAO interviewed DOT and DOJ 

officials and 26 stakeholders, selected 

based on prior work and their expertise 

in the field, from organizations in 

sectors such as academia, airlines, 

consumer advocacy, and finance. 

Their views are not generalizable, but 

provide perspectives on a range of 

competition issues. Both DOJ and 

DOT provided technical comments on 

a draft of this report, which were 

incorporated as appropriate. 

What GAO Found

The U.S. passenger airline industry has returned to profitability following the 

recent economic recession. From 2007 through 2012, the industry generated 

approximately $21.7 billion in operating profits despite losing about $5.6 billion in 

2008. U.S. airlines maintained approximately $13 billion in cash reserves in 

2012. Growth in revenue has driven industry profits, aided by increased 

passenger traffic, “capacity restraint,” (i.e., limiting the supply of available seats in 

relation to the level of demand), and revenue from ancillary fees for checking 

bags and other services. For example, baggage and reservation change fees 

collected by U.S. airlines increased from about $1.4 billion in 2007 to $6 billion in

2012. Additionally, unlike prior recoveries when airline capacity growth

undermined the ability to charge profitable fares, airlines since 2009 have 

restrained capacity growth even though demand for air travel has risen with the 

economic recovery. 

In recent years, the average number of competitors has not substantially 

changed in markets traveled by the majority of passengers, despite several major 

airline mergers. From 2007 through 2012, the average number of effective 

competitors (defined as airlines with more than a 5 percent market share) ranged

from 4.3 to 4.5 in the markets with the most passengers. During this period, the 

average number of effective competitors in markets with the fewest passengers 

decreased slightly from 3.3 to 3 airlines. While these results reflect market 

changes that have occurred since several airlines merged, the American-US 

Airways merger occurred after GAO’s analysis. The mergers created larger 

networks and new connections in some markets. Also, low-cost airlines have

expanded since 2007, thereby adding new competitors into some larger markets. 

The structure of the market will continue to evolve as economic conditions 

change and the recent airline mergers are fully implemented. 

In recent years, consumers have experienced higher airfares, additional fees, 

and fewer flights in certain markets, but also new services and expanded 

networks. Consumers paid about 4 percent more in real terms, on average, for 

air travel in 2012 than in 2007, without considering additional fees. The airline 

industry has reduced flights, especially to smaller airports, and consolidated 

service at large airports. Airlines have also invested in new aircraft and 

introduced new services, such as early boarding and entertainment options, in an 

attempt to differentiate products and increase revenue. 

Most airline stakeholders cited barriers to market entry, especially restrictions on

takeoff and landing slots at four U.S. airports—Washington, D.C.’s Reagan 

National and three New York City area airports—as a major challenge to airline 

competition. Barriers that make airline entry more difficult can hamper 

competition and enable incumbent firms to charge and maintain higher prices. In 

addition, access to capital and the size advantages of major airlines present a 

formidable challenge for any new airline. Stakeholders suggested addressing

challenges to competition by increasing capacity at congested airports, 

enhancing fare transparency, and allowing states a greater role in consumer 

regulation of airlines. However, stakeholders differed regarding the role of the 

federal government in addressing competition challenges, in part because

changes to the airline industry due to consolidation are ongoing. 

View GAO-14-515. For more information, 

contact Susan Fleming at (202) 512-2834 or 

flemings@gao.gov.
Page i GAO-14-515 Airline Competition

Letter 1 

Background 4

Increased Revenues and Reduced Costs Have Strengthened the 

Financial Health of the U.S. Airline Industry 10

Despite Industry Consolidation, the Average Number of 

Competitors Has Not Substantially Changed in the Markets 

Traveled by the Majority of Passengers 21

Consumers Have Experienced a Rise in Fares, Additional Fees, 

and Fewer Flights in Certain Markets, but Benefit from New 

Services and Expanded Networks 31

Airline Stakeholders Identified Several Challenges to Airline 

Competition and Proposed Limited Federal Actions to Address 

Them 41

Agency Comments 53

Appendix I Objectives, Scope, and Methodology 54

Appendix II Results of Market Structure Analysis for the U.S. Passenger Airline 

Industry, 2007–2012 61

Appendix III GAO Contact and Staff Acknowledgments 62

Tables

Table 1: Example of Number of City-Pair Markets and Passengers 

per Quintile, 2012 23

Table 2: Market Structure Data Based on Total Passengers by 

Quintiles, 2012 57

Table 3: Market Structure Data Based on Total Markets by 

Quintiles, 2012 57

Table 4: Airline Stakeholders GAO Interviewed 59

Table 5: Average Number of Effective Competitors by Airport-Pair 

Market Size 61

Table 6: Average Number of Effective Competitors by City-Pair 

Market Size 61

Table 7: Market Concentration by Airport-Pair Market Size, as 

Measured by the Herfindahl-Hirschman Index 61

Contents
Page ii GAO-14-515 Airline Competition

Table 8: Market Concentration by City-Pair Market Size, as 

Measured by the Herfindahl-Hirschman Index 61

Figures

Figure 1: Selected U.S. Airline Mergers and Acquisitions, 1929–

2013 6

Figure 2: Operating Profits and Losses, U.S. Passenger Airline 

Industry, 2007–2012 11

Figure 3: Total Operating Revenues, U.S. Passenger Airline 

Industry, 2007–2012 13

Figure 4: Domestic Available Seat Miles, Network and Low-Cost 

Airlines, 2007–2012 15

Figure 5: Unit Revenues, Network and Low-Cost Airlines, 2007–

2012 16

Figure 6: Unit Costs, Excluding Fuel and Transport Expenses, 

Network and Low-Cost Airlines, 2007–2012 21

Figure 7: Average Number of Effective Competitors in U.S. 

Passenger Airline Industry by City-Pair Market Size, 

2007–2012 24

Figure 8: Market Concentration in U.S. Passenger Airline Industry 

by City-Pair Market Size, 2007–2012 27

Figure 9: Percentage Change in Number of Flights and Available 

Seats by Airport Category, 2007–2013 36

Figure 10: Passenger Load Factors, U.S. Passenger Airline 

Industry, 2007–2012 38

Figure 11: Average Seats per Flight by Airport Category, 2007–

2012 40
Page iii GAO-14-515 Airline Competition

Abbreviations

DOJ Department of Justice

DOT Department of Transportation 

FAA Federal Aviation Administration

HHI Herfindahl-Hirschman Index 

IATA International Air Transport Association

JFK John F. Kennedy International Airport

MIT Massachusetts Institute of Technology

XML Extensible Markup Language

This is a work of the U.S. government and is not subject to copyright protection in the 

United States. The published product may be reproduced and distributed in its entirety 

without further permission from GAO. However, because this work may contain 

copyrighted images or other material, permission from the copyright holder may be 

necessary if you wish to reproduce this material separately.
Page 1 GAO-14-515 Airline Competition

441 G St. N.W.

Washington, DC 20548

June 11, 2014

The Honorable Amy Klobuchar

Chairman

The Honorable Mike Lee

Ranking Member

Subcommittee on Antitrust, Competition Policy and Consumer Rights

Committee on the Judiciary

United States Senate

The Honorable Rick Larsen

Ranking Member

Subcommittee on Aviation

Committee on Transportation and Infrastructure

House of Representatives

Since 2000, the U.S. passenger airline industry has faced a number of 

major challenges. For example, the industry struggled to recover from the 

economic recession that began in early 2001 and the aftermath of the 

events of September 11, 2001. While U.S. airlines partially rebounded 

from those events, record-high fuel prices, the financial crisis, and 

ensuing recession of 2007–2009 presented new challenges and led to 

heavy financial losses, particularly for network airlines—the largest 

segment of the industry.1 These challenges contributed to a wave of 

bankruptcies and airline consolidation through several major airline 

mergers. Since 2007, six domestic network and two low-cost airlines have 

consolidated to four major airlines.2 As a result, there are fewer major 

U.S. airlines today than at any time since deregulation in 1978. 

Furthermore, approximately 85 percent of U.S. passengers traveled on 

American Airlines, Delta Air Lines, Southwest Airlines, or United Airlines 

 

1

Network (or legacy) airlines were in operation before the Airline Deregulation Act of 1978 

(Pub. L. No. 95-504, 92 Stat. 1705) and provide service through hubs from “anywhere to 

everywhere.” For purposes of this report we have defined Alaska Airlines, American 

Airlines, Continental Airlines, Delta Air Lines, Hawaiian Airlines, Northwest Airlines, United 

Airlines and US Airways as network airlines. 

2

Low-cost airlines generally entered the market after deregulation and tend to operate 

point-to-point service. We have defined AirTran Airways, Allegiant Air, America West 

Airlines, Frontier Airlines, JetBlue, Southwest Airlines, Spirit Airlines, and Virgin America 

as low-cost airlines.
 

Page 2 GAO-14-515 Airline Competition

in 2013.3 Some observers have raised questions about the effects 

consolidation will have on airline competition, suggesting that consumers 

may ultimately face higher airfares and reduced service. Others argue 

that consumers can benefit from recent changes in the industry, as 

profitable airlines reinvest in new planes, improve the quality of on-board 

services available to passengers, and expand their networks.

The recent merger between American Airlines and US Airways in 2013 

prompted further interest in the effects that domestic airline consolidation 

has had on competition and consumers. In order to assist Congress with 

oversight of competition policy and consumer rights, you asked us to 

examine the U.S. airline industry and the impact that recent consolidation 

has had on consumers. Specifically, this report describes (1) how the 

financial health of the U.S. airline industry has changed since 2007; (2) 

changes to the structure of the market since 2007; (3) how consumers 

have been affected by changes in the financial health and market 

structure of the U.S. airline industry; and (4) what stakeholders believe 

are the key challenges to airline competition and actions the federal 

government could take to address these challenges.

To address these objectives, we conducted analyses using airline 

industry information reported to the Department of Transportation (DOT), 

reviewed government and academic studies, and conducted interviews 

with knowledgeable individuals. Specifically, to evaluate changes to the 

financial health of the domestic airline industry, we analyzed airline 

financial data reported to DOT by airlines from 2007 through 2012 as 

these were the most recent and complete annual data. We also reviewed 

financial studies and conducted interviews with airline representatives, 

industry trade associations, industry analysts, and other industry 

stakeholders. To evaluate changes in the market structure of the airline 

industry, we analyzed data from DOT’s Origin and Destination Survey 

from 2007 through 2012, which include fare and itinerary information on 

every 10th airline ticket sold; reviewed academic studies assessing 

competition; and interviewed DOT officials, airline representatives, and 

aviation industry stakeholders. This analysis focused on domestic citypair markets, which are typically viewed as the basic, relevant market for 

 

3

We used Department of Transportation (DOT) T-100 data for domestic marketing airlines 

in 2013 to determine industry market share. According to DOT, the marketing airline 

issues a flight reservation or ticket either on their aircraft or under a code-share agreement 

with another airline that may provide the actual transportation. 
 

Page 3 GAO-14-515 Airline Competition

airline travel in the U.S. A city-pair market represents air transportation 

between two cities. To determine how consumers have been affected by 

changes to the airline industry, we assessed DOT data from 2007 through 

2012 on service levels to large-, medium-, and small-hub airports, and 

nonhub airports,4 reviewed academic studies, and conducted interviews 

with academic and research experts, airline representatives, DOT and 

Department of Justice (DOJ) officials, and representatives from travel and 

consumer advocacy organizations. To assess the reliability of all DOT 

data that we used, we reviewed the quality control procedures applied by 

DOT and interviewed officials responsible for collecting these data, and 

subsequently determined that the data were sufficiently reliable for our 

purposes. Finally, to identify what stakeholders believe are the key 

challenges to competition and what actions the federal government could 

take to address these challenges, we interviewed six academic and 

research experts and representatives from five airlines, five travel and 

consumer advocacy organizations, five industry analysts, four industry 

trade associations, and one airport authority. We identified and selected 

these stakeholders based on our prior work and a literature review of 

relevant academic research. Their views should not be used to make 

generalizations about the views of all industry stakeholders, but do 

provide a range of perspectives on issues affecting the industry. Although 

our report focuses on the domestic airline industry, we have included 

international issues raised by some stakeholders because they viewed 

these issues as having implications for competition in the domestic airline 

industry. For more details on our scope and methodology, see appendix I.

We conducted this performance audit from May 2013 through June 2014 

in accordance with generally accepted government auditing standards. 

Those standards require that we plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our 

findings and conclusions based on our audit objectives. We believe that 

the evidence obtained provides a reasonable basis for our findings and 

conclusions based on our audit objectives.

 

4

In general, federal statute defines large-hub airports as those commercial service airports 

that have at least 1 percent of the passenger boardings. Medium- and small-hub airports 

are defined as having between .25 and 1 percent, and .05 and .25 percent, respectively. 

Nonhub airports enplaned at least 10,000 passengers, but no more than .05 percent of all 

passenger boardings. 49 U.S.C. § 40102(29),(31),(42).
 

Page 4 GAO-14-515 Airline Competition

The passenger airline industry is primarily composed of network, lowcost, and regional airlines. Network airlines were in operation before the 

Airline Deregulation Act of 1978 and support large, complex hub-andspoke operations with thousands of employees and hundreds of aircraft. 

These airlines provide service at various fare levels to a wide variety of 

domestic and international destinations. Although this study focuses 

primarily on domestic competition, network airlines also serve 

international destinations. By some estimates, nearly 40 percent of 

network airlines’ revenue is from international service, so domestic 

service is often aligned with their international networks. Low-cost airlines 

generally entered the market after deregulation and tend to operate less 

costly point-to-point service using fewer types of aircraft. Low-cost airlines 

are just beginning to serve international markets, mostly in the Caribbean 

and Latin America. Some airlines, like Allegiant Air and Spirit Airlines, are 

referred to as ultra-low-cost because they provide service often to leisure 

destinations at discount fares, but with higher optional fees, such as for 

carry-on and checked baggage. Regional airlines operate smaller 

aircraft—turboprops or regional jets with up to 100 seats—and generally 

provide service to smaller communities under capacity purchase 

agreements with network airlines.5 Some regional airlines are owned by a 

network airline, while others are independent. Regional airlines operate 

about half of all domestic flights and carry about 22 percent of all airline 

passengers. 

We have previously found that the financial performance of the 

deregulated airline industry has been characterized by extremely volatile 

earnings.6 Despite periods of strong growth and earnings, some airlines 

have taken advantage of Chapter 11 bankruptcy protection to reorganize 

and address financial commitments and/or pursued mergers during times 

of substantial financial distress, although in some cases airlines have 

 

5

Under a capacity purchase agreement, network airlines contract with regional airlines to 

provide air service beyond the network airline’s route network to increase their capacity 

and revenue. Agreement terms vary, but network airlines generally take on all commercial 

functions, such as brand marketing, flight scheduling, and ticket pricing, while the regional 

airlines are responsible for the aircraft and crews to operate the flights and provide ground 

and flight operations. 

6

GAO, Commercial Aviation: Airline Industry Contraction Due to Volatile Fuel Prices and 

Falling Demand Affects Airports, Passengers, and Federal Government Revenues, 

GAO-09-393 (Washington, D.C.: Apr. 21, 2009).

Background
 

Page 5 GAO-14-515 Airline Competition

entered Chapter 7 bankruptcy proceedings to cease operations.7 Some 

analysts view the industry as inherently volatile due to key demand and 

cost characteristics that make it difficult for airlines to quickly reduce 

capacity in periods of declining demand. For example, airlines have high 

fixed costs and cannot quickly reduce either flight schedules or 

employment costs when demand for air travel slows—the latter due in 

part to commitments made within collective-bargaining agreements and 

other types of contracts and leases. As we have previously noted, the 

industry is also highly susceptible to external shocks that decrease 

demand, such as those caused by wars, terrorist attacks, health events 

such as the SARS epidemic, or fuel price volatility.

The airline industry has experienced considerable merger and acquisition 

activity, especially following deregulation in 1978.8 Since 2000, economic 

pressures—including volatile fuel prices, the financial crisis, and ensuing 

economic recession of 2007–2009—sparked a wave of consolidation 

across the airline industry. For instance, Delta acquired Northwest in 

2008, United and Continental merged in 2010, Southwest acquired 

AirTran in 2011, and US Airways and American Airlines agreed to merge 

in 2013 and received U.S. District Court approval for the merger in April 

2014. Figure 1 provides a timeline of mergers and acquisitions for the four 

largest surviving domestic airlines—American, Delta, Southwest, and 

United—based on the number of passengers served. These four airlines 

account for approximately 85 percent of passenger traffic in the United 

States in 2013.

 

7

A Chapter 7 proceeding is a court-supervised procedure by which a trustee takes over 

the debtor’s assets, reduces them to cash, and makes distributions to creditors. Debtors 

that are commercial enterprises desiring continuation of some or all of the debtor’s 

operations ordinarily seek to reorganize under Chapter 11 as a way to satisfy creditor 

claims. Under Chapter 11, typically the debtor remains in control of the assets. If, 

however, the bankruptcy court determines that this is not in the best interest of creditors, 

the court can appoint a trustee to oversee the debtor. 

8

Mergers generally refer to the combination of two companies into one company by 

mutual consent, while acquisitions (also called takeovers) refer to one company’s 

purchase of assets or equity in another company on friendly or hostile terms. 
 

Page 6 GAO-14-515 Airline Competition

Figure 1: Selected U.S. Airline Mergers and Acquisitions, 1929–2013

A key financial benefit that airlines consider in a merger is the potential for 

increased revenues generated through additional demand (generated by 

more seamless travel to more destinations), increased market share, and 

higher fares on some routes.9 Airlines also consider cost reductions that

may result from combining complementary assets, reducing or eliminating 

duplicative activities and operating costs, and reducing capacity when 

merging with or acquiring another airline. For example, the combined 

airlines may be able to reduce or eliminate duplicative service, labor, and 

operations costs or achieve operational efficiencies by integrating 

computer systems and similar airline fleets.10

The most recent wave of consolidation has raised new questions about 

the state of competition in the industry. Economic theory suggests that 

competition is strongest when there are many firms in a market, and no 

firm has a substantial share of that market. By contrast, competition may 

 

9

GAO, Airline Mergers: Issues Raised by the Proposed Merger of American Airlines and 

US Airways, GAO-13-403T (Washington, D.C.: June 19, 2013).

10GAO, Airline Mergers: Issues Raised by the Proposed Merger of United and Continental 

Airlines, GAO-10-778T (Washington, D.C.: May 27, 2010).
 

Page 7 GAO-14-515 Airline Competition

be weaker when there are only a small number of firms because they 

may be able to exercise market power—in general terms, the ability to 

raise and maintain prices above those that would be set in a competitive 

market. However, if new firms are able to readily enter the market and 

effectively compete, they may mitigate the potential anti-competitive 

effects of a small number of incumbent firms, thus reducing the 

incumbent firms’ market power. The intensity of competition in a market is 

not solely driven by the number of firms or the ease of entry, however. In 

some cases, competition can be robust in a market with only a few firms 

even when entry is difficult.

Although recent mergers have reduced the total number of domestic 

airlines, consumers are less directly affected by changes at the national 

level than at the individual route level. Consumers purchase seats for air 

transportation from one city to another. As such, they are likely to be 

more concerned about the number of airlines serving any specific route. 

Thus, a “city-pair,” or traffic between two cities, is typically viewed as the 

basic relevant market for airline travel, including by DOJ, the agency 

charged with reviewing U.S. airline mergers. The relevant market in a 

competitive analysis is one in which the good sold by a set of firms is 

seen by consumers as having some degree of substitutability, such that if 

one firm were to raise its prices, some consumers would see the good 

available from other firms as a reasonable substitute and would choose to 

buy the good from those other firms. If a person wants to travel from 

Seattle to Detroit, for example, a ticket from Seattle-Tacoma International 

Airport to Washington Dulles International Airport would not be a 

substitute. When there is more than one airport in a metropolitan area for 

a consumer to choose from, however, the relevant market analysis could 

focus on an “airport-pair,” instead of a city pair. For example, there are 

two major airports in the Washington metropolitan area—Washington 

Dulles International Airport and Ronald Reagan Washington National 

Airport—and a third nearby airport in Baltimore. Some travelers planning 

to fly from Seattle to Washington, D.C. could view a ticket to 

Baltimore/Washington Thurgood Marshall International Airport as a 

reasonable substitute for a ticket to Ronald Reagan Washington National 

Airport. In addition, travel can occur through nonstop flights and 

connecting hubs. While some travelers (mostly business travelers) may 

be willing to pay more for the convenience of nonstop flights and would 

view connecting flights as a poor substitute, others might weigh the 

potential extra cost of nonstop flights more heavily and choose a less 

expensive connecting option.
 

Page 8 GAO-14-515 Airline Competition

A starting point for any assessment of competition in an industry is an 

evaluation of market structure characteristics, including market 

concentration and the number of effective competitors.11 These are 

relevant indicators of the potential degree of competition because, in the 

absence of new entry, having fewer competitors may lead to adverse 

competitive effects such as higher prices and reduced consumer 

choices.12 We have previously examined a number of these market 

structure characteristics, including:

• the average number of effective competitors in different segments of 

the market;

• the types of airlines, including the presence of network and low-cost 

airlines, in the market;

• airline market share of passengers at the route and airport level; and

• barriers to entry, including practices or conditions that may impede a 

firm’s ability to enter a market.13

A full competitive market analysis of the domestic airline industry—which 

we do not undertake in this report—would include a review of factors 

beyond solely market structure, including the likelihood that airlines would 

coordinate their behavior in terms of marketing or pricing, as well as the 

ease of entry that could negate market power. Additionally, in the case of 

a merger analysis, possible benefits related to the merger, such as 

enhanced innovation and economic efficiencies, would also be 

considered.

Both DOJ and DOT play a role in reviewing airline mergers and 

acquisitions. DOJ principally uses the analytical framework established in 

 

11For the purpose of this analysis, an effective competitor is any airline that carries at least 

5 percent of the traffic in a given market.

12Some studies have found that greater market concentration is associated with higher 

prices and, in the context of federal antitrust enforcement, market concentration remains 

an important predictor of federal agency action. See Jonathan S. Baker and Carl Shapiro, 

“Reinvigorating Horizontal Merger Enforcement,” in How the Chicago School Overshot the 

Mark: The Effect of Conservative Economic Analysis on U.S. Antitrust, ed. by Robert 

Pitofsky (Oxford University Press: 2008) and Carl Shapiro, “The Horizontal Merger 

Guidelines: From Hedgehog to Fox in Forty Years,” 77 Antitrust L. J. 701 (2010). For 

additional discussion, see William E. Kovacic and Carl Shapiro, “Antitrust Policy: A 

Century of Economic and Legal Thinking,” Journal of Economic Perspectives, vol. 14, no. 

1 (Winter 2000). 

13GAO, Airline Competition: Effects of Airline Market Concentration and Barriers to Entry 

on Airfares, GAO/RCED-91-101 (Washington, D.C.: Apr. 26, 1991). 
 

Page 9 GAO-14-515 Airline Competition

the Horizontal Merger Guidelines14 to analyze whether a proposed merger 

or acquisition involving actual or potential competitors raises antitrust 

concerns—in other words, whether the proposal will likely create, 

enhance, or entrench market power or facilitate its exercise.15 As part of 

its analysis, DOJ uses the Herfindahl-Hirschman Index (HHI) to assess 

whether a merger is likely to significantly increase concentration and raise 

anti-competitive concerns in the markets (principally, city-pairs) in which 

airlines operate.16 Within the context of its air-carrier certification 

responsibilities, DOT also conducts analyses of the merits of any airline 

merger and acquisition17 and submits its views and relevant information in 

its possession to DOJ. DOT also provides some essential data—for 

example, the airlines’ routes and passenger traffic—that DOJ uses in its 

review.

 

14The Guidelines were jointly developed by DOJ’s Antitrust Division and the Federal Trade 

Commission and describe the inquiry process the two agencies follow in analyzing 

proposed mergers. The current version of the Guidelines was revised in August 2010.

15Most proposed airline mergers or acquisitions must be reviewed by DOJ. In particular, 

under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (Pub. L. No. 94-435, 90 

Stat. 1383), any acquisition of voting securities or assets above a set monetary amount 

must be reported to DOJ (or the Federal Trade Commission for certain industries) so the 

Department can determine whether the merger or acquisition raises antitrust concerns. 

See 15 U.S.C. § 18a(d)(1). DOJ has the lead role in reviewing proposed mergers and 

acquisitions in the airline industry, given its statutory authority to enforce antitrust laws. 

DOT also has authority under 15 U.S.C. § 21 to bring administrative proceedings against 

airline mergers that violate the antitrust laws; however, according to DOT it has not 

exercised this authority. 

16HHI is calculated by summing the squares of the individual firms’ market shares. In 

addition to market concentration, DOJ’s review of proposed mergers considers (1) the 

extent of potential adverse competitive effects of the merger, such as whether the merged 

entity will be able to charge higher prices or restrict output for the product or service it 

sells; (2) whether other competitors are likely to enter the affected markets and whether 

they would counteract any potential anticompetitive effects that the merger might have 

posed; (3) the verified “merger specific” efficiencies or other competitive benefits that may 

be generated by the merger and that cannot be obtained through any other means; and 

(4) whether, absent the merger or acquisition, one of the firms is likely to fail, causing its 

assets to exit the market.

1749 U.S.C. § 41110.
 

Page 10 GAO-14-515 Airline Competition

Sustained airline profits since 2009 have bolstered the financial health of 

the U.S. passenger airline industry. Our analysis of the latest available 

financial data reported by airlines to DOT showed that the industry 

generated operating profits of approximately $21.7 billion from 2007 

through 2012.18 Although the financial performance of individual airlines 

differed, network airlines as a whole generated operating profits of 

approximately $12 billion from 2007 through 2012, while low-cost airlines 

and regional airlines generated profits of approximately $6.1 billion and 

$3.6 billion respectively over the same period. This recovery follows 

operating losses of $5.6 billion for the U.S. passenger airline industry as a 

whole in 2008, due largely to the economic recession and volatility in the 

price of fuel. Figure 2 shows operating profits and losses for U.S. 

passenger airlines since 2007.

 

18The universe of passenger airlines considered for our analysis accounts for almost all 

U.S. passengers. For example, it accounts for 99 percent of all passengers flying in the 

U.S. in the fourth quarter of 2012. It excludes charter and cargo airlines. 

Increased Revenues 

and Reduced Costs 

Have Strengthened 

the Financial Health 

of the U.S. Airline 

Industry

The U.S. Airline Industry’s 

Profitability Has Improved 

since 2009
 

Page 11 GAO-14-515 Airline Competition

Figure 2: Operating Profits and Losses, U.S. Passenger Airline Industry, 2007–2012

Recent efforts by certain airlines to return profits to shareholders are 

another indication of the industry’s improved financial health since the 

economic recession of 2007–2009. For example, Delta Air Lines paid a 

quarterly dividend in 2013—its first since 2003—and plans to pay $1 

billion in dividends to its shareholders over the next several years. The 

airline also announced a program to repurchase $500 million in shares of 

its stock by June 2016 and provided $506 million in profit-sharing 

bonuses for its employees in February 2014.19 Industry analysts we spoke 

with said that other network airlines would likely follow Delta and 

introduce dividends in the near term. Additionally, Southwest—the only 

airline offering a share dividend previously—quadrupled its quarterly 

dividend in May 2013, increased its share buy-back program, and 

announced $228 million in annual profit-sharing with its employees in 

2014, an increase from $121 million in 2013.

 

19A repurchase of stock is a distribution in the form of a company buying back its stock 

from shareholders. 
 

Page 12 GAO-14-515 Airline Competition

We found that improved profitability has enabled airlines to raise their 

liquidity in recent years by increasing their total cash reserves. Liquidity 

levels are especially important in the airline industry because cash 

balances help the airlines withstand potential industry shocks, such as 

lower travel demand or more volatile fuel prices, as well as pay down debt 

and reduce the risk of bankruptcy. U.S. airlines as a whole have 

increased their cash reserves from approximately $8 billion in 2007 to 

approximately $13 billion in 2012.

Network airlines have also generally reduced their long-term debt and 

certain airlines improved their credit position. Network airlines reduced 

long-term debt 3.7 percent (or approximately $1.2 billion) from 2007 to 

2012, while low-cost airlines saw an increase in their long-term debt of 

1.6 percent (or approximately $97 million) over this period. Debt reduction 

by network airlines has resulted in some improvement in credit profiles 

and credit rating upgrades for certain airlines. For example, in June 2013 

Fitch Ratings Service revised its ratings outlook for Delta Air Lines from 

stable to positive, and in March 2014 upgraded the issuer default rating 

from B+ to BB-.20 Among low-cost airlines, Southwest Airlines remains the 

only airline with a credit rating that is considered investment grade, which 

indicates relatively low to moderate credit risk. Fitch affirmed the airline’s 

rating at BBB in September 2013. Improved credit ratings help airlines 

lower the cost of capital by enabling them to obtain financing—including 

the refinancing of existing debt—at more advantageous terms. Credit 

rating analysts we spoke to emphasized, however, that the industry 

remains significantly leveraged with debt, which may negatively affect 

their credit ratings.

 

20According to Fitch, the issuer default rating addresses an entity’s relative vulnerability to 

default on financial obligations. “B” ratings indicate that material default risk is present, but 

a limited margin of safety remains. Firms with “BB” ratings remain vulnerable to default 

risk, particularly in the event of adverse changes in business or economic conditions over 

time; however, business or financial flexibility exists, which supports the servicing of 

financial commitments. “BBB” ratings represent good credit quality and indicate that 

expectations of current default risk are low.
 

Page 13 GAO-14-515 Airline Competition

Growth in revenues has been a key driver in the U.S. airline industry’s 

improved financial health and profitability. This growth has been aided by 

three factors: (1) an increase in passenger traffic; (2) capacity restraint 

(i.e., limiting the supply of available seats in relation to the level of 

demand), which has contributed to a rise in airfares; and (3) increased 

revenues from ancillary fees. Total operating revenues decreased by 

nearly $22 billion from 2008 to 2009 due largely to the recession, but 

have since exceeded pre-recession levels. The industry’s operating 

revenues grew 29 percent from approximately $121 billion in 2009 to 

$156 billion in 2012 (see fig. 3). During this period, network airline 

operating revenues increased 29 percent (from $92.5 billion to $120 

billion), while operating revenues for low-cost airlines grew 43 percent 

(from $19 billion to $27 billion).

Figure 3: Total Operating Revenues, U.S. Passenger Airline Industry, 2007–2012

Although airlines’ operating revenues have increased in recent years, net 

profit margins for the industry remain lower than those for most other 

industries. According to an industry association, for example, operating 

profits for nine U.S. passenger airlines in 2013 were 4.9 percent of total 

operating revenues, as compared to the Standard & Poor’s 500 Index 

industry average, which was twice that percentage.

Increased Passenger 

Traffic, Capacity Restraint, 

and Ancillary Fees Have 

Improved Airline 

Revenues since the 

Economic Recession
 

Page 14 GAO-14-515 Airline Competition

A recovery in domestic passenger traffic since 2009 has been a key 

factor in the growth in airline revenues and industry profitability. Total 

domestic airline passenger traffic, as measured by revenue passenger 

miles (RPMs) (e.g., one fare-paying passenger transported one mile) 

dropped about 8 percent from approximately 579 billion RPMs in 2007 to 

532 billion RPMs in 2009 largely due to the economic recession, and

recovered from 2009 through 2012 to approximately 575 billion RPMs.

Restraint in airline capacity—as measured by the supply of available seat 

miles—has also contributed to industry profitability since 2007 by allowing 

increased revenues at lower costs. Until recently, it was common in the 

U.S. airline market for any reduction in capacity to be quickly replaced. 

For example, we have previously found that although one airline may 

reduce capacity or leave the market, capacity has tended to return 

relatively quickly through new airline entry or expansion by an existing 

airline.21 In fact, we found in 2008 that some U.S. airline industry 

recoveries stalled because airlines grew their capacity so quickly—either 

by adding additional flights or flying larger aircraft with more seats in an 

effort to gain market share—that their ability to charge profitable fares 

was undermined.22 This dynamic appears to be changing in recent years, 

however. Several industry experts told us that network airlines responded 

to high fuel prices and declining demand during the economic recession, 

as expected, by reducing the supply of available seats. For example, 

network airline domestic capacity decreased nearly 10 percent from 446 

billion available seat miles in 2007 to 403 billion available seat miles in 

2009. However, unlike after other industry downturns, network airlines 

have not responded to rising demand for air travel in the last few years by 

increasing capacity, as available seat miles essentially remained flat (a 

decline of about 1 percent) from 2009 through 2012 as shown in figure 4 

below.23

 

21GAO-13-403T. 

22GAO-08-845. 

23Available seat miles are the number of seats offered by an airplane multiplied by the 

number of scheduled miles flown. This is a typical measure of capacity in the airline 

industry.
 

Page 15 GAO-14-515 Airline Competition

Figure 4: Domestic Available Seat Miles, Network and Low-Cost Airlines, 2007–2012

Domestic capacity has remained flat while domestic RPMs have 

increased since 2009, contributing to an increase in unit revenues.24 Unit 

revenues rose for network and low-cost airlines from 2007 to 2008 and 

then fell from 2008 to 2009 largely due to the economic recession. From 

2009 to 2012, unit revenues for both segments increased. Specifically, as 

shown in figure 5, over that 4-year period, network airlines’ unit revenues 

increased 23 percent (from approximately $0.11 to $0.14 per available 

 

24Unit revenues are the operating revenues airlines earn per available seat mile.
 

Page 16 GAO-14-515 Airline Competition

seat mile), while low-cost airline unit revenues rose approximately 27 

percent (from approximately $0.10 to $0.13).25

Figure 5: Unit Revenues, Network and Low-Cost Airlines, 2007–2012

Note: Unit revenues, or revenue per available seat mile, are calculated as operating revenues 

excluding transport revenues divided by total available seat miles.

As demand has increased, capacity restraint has resulted in higher 

airfares. For example, average one-way domestic fares not including 

taxes or other fees increased approximately 9 percent from $184.92 in 

2007 to $201.00 in 2012 for network airlines, and approximately 17 

percent from $117.37 to $137.00 for low-cost airlines.

 

25We did not adjust unit revenue and unit cost figures for stage length, which is the 

average distance flown per aircraft departure. Adjusting for stage length standardizes the 

inherent differences in route structures among airlines and allows for more even 

comparisons of unit revenue and cost differences. Although, in general, network airlines

have had longer stage lengths than low-cost airlines, average stage length for low-cost 

airlines, especially Southwest Airlines, has been increasing since 2007 and therefore 

stage length adjustments have less of an effect. 
 

Page 17 GAO-14-515 Airline Competition

Network airlines have readjusted capacity to add available seats on more 

profitable routes, particularly those to international destinations. In 2007, 

approximately 63 percent of network airlines’ available seat miles were 

domestic and 37 percent were international. In 2012, network airlines’ 

international available seat miles represented 42 percent of their total 

capacity. Network airlines are shifting their focus to international routes, in 

part, because they are more profitable and in these markets they face 

less competition from low-cost airlines, which provide predominantly 

domestic service. In addition, as we found in 2008, international routes 

provide additional passenger flow and revenue because passengers often 

travel through network airlines’ domestic networks to reach the departure 

airport for their international connection.26

Airline revenues have also been supplemented by the growth in ancillary 

fees for optional services. These include fees for services that were 

previously included in the price of airfare, such as checked bags, early 

boarding, seat selection, and meals, and for new services that were not 

previously available like Wi-Fi access and other entertainment options.27

In addition, Delta, United, and American have increased their ticketchange fees on nonrefundable tickets to as much as $200. According to 

industry experts, ancillary fees have been beneficial for airlines by 

enabling them to collect revenues that are related to the costs imposed by 

individual passengers, in contrast to the previous approach in which 

airlines spread the costs associated with these services equally across all 

travelers through fares, regardless of whether all passengers actually 

used the specific services. Ancillary fees comprise an increasing 

proportion of airline operating revenues, although the total amount is 

unclear because airlines are only required to report their checked bag and 

reservation change fees.28 In 2012, the U.S. airline industry generated 

approximately $6 billion in checked baggage and reservation change 

fees, up from approximately $1.4 billion in 2007. Revenues from checked 

baggage and reservation change fees reported by network airlines have 

 

26GAO-08-845. 

27Charging fees for services is also known as unbundling charges, offering a la carte 

pricing, or charging ancillary fees. See GAO, Commercial Aviation: Consumers Could 

Benefit from Better Information about Airline-Imposed Fees and Refundability of 

Government-Imposed Taxes and Fees, GAO-10-785 (Washington, D.C.: July 14, 2010). 

28Specifically, DOT only requires airlines to report excess baggage and reservation 

change fees in separate accounts; other ancillary fees are commingled with other revenue 

accounts. 
 

Page 18 GAO-14-515 Airline Competition

grown from about 1 percent of total operating revenues in 2007 to 

approximately 4 percent in 2012. Checked baggage and reservation 

change fees collected by network airlines increased from approximately 

$1.2 billion in 2007 to $5.1 billion in 2012. Over the same period, checked 

baggage and reservation change fees reported by low-cost airlines 

increased from approximately $183 million (about 1 percent of total 

operating revenues) in 2007 to approximately $892 million (about 3 

percent) in 2012. Ultra low-cost airlines like Allegiant Air and Spirit 

Airlines that offer low fares are particularly reliant on ancillary fees. For 

example, revenues from checked baggage and change fees reported by 

Spirit Airlines grew from nearly 3 percent of total operating revenues in 

2008 to almost 15 percent in 2012.

Efforts by network airlines to reduce costs have also been a key factor in 

the improved financial performance of the U.S. airline industry. We have 

previously found that bankruptcy restructuring during the last decade 

played a key role in enabling network airlines to reduce costs.29 The 

bankruptcy process enabled Delta Air Lines and American Airlines to cut 

their costs by negotiating contract and pay concessions from their labor 

unions and through bankruptcy restructuring and personnel reductions. 

Bankruptcy restructuring also allowed some large airlines to significantly 

reduce their pension expenses by terminating their pension obligations 

and shifting claims to the Pension Benefit Guarantee Corporation.30

 

29GAO-08-845. 

30The Pension Benefit Guarantee Corporation was established under the Employee 

Retirement Income Security Act of 1974 (ERISA) (Pub. L. No. 93-406, 88 Stat. 829, 1003) 

and set forth standards and requirements that apply to defined benefit plans. It was 

established to encourage the continuation and maintenance of voluntary private pension 

plans and to insure the benefits of workers and retirees in defined benefit plans should 

plan sponsors fail to pay benefits. The corporation’s operations are financed, for example, 

by insurance premiums paid by sponsors of defined benefit plans, investment income, and 

assets from pension plans trusted by the corporation, and recoveries from the companies 

formerly responsible for the plans. See GAO, Airline Mergers: Issues Raised by the 

Proposed Merger of American Airlines and US Airways, GAO-13-403T (Washington, D.C.: 

June 19, 2013). During bankruptcy, United and US Airways terminated their pension plans 

and shifted $9.7 billion in claims to the corporation. As a result, plan participants lost $5.3 

billion in benefits (in constant 2005 dollars). See GAO, Commercial Aviation: Bankruptcy 

and Pension Problems are Symptoms of Underlying Structural Issues, GAO-05-945

(Washington, D.C.: Sept. 30, 2005). 

Cost Reduction Measures 

Have Also Contributed to 

Improved Financial Health 

for Network Airlines, While 

Low-Cost Airline Costs 

Have Risen
 

Page 19 GAO-14-515 Airline Competition

Network airlines have also accomplished cost reductions by more 

efficiently managing capacity. As previously mentioned, there have been 

four mergers and acquisitions involving major airlines since 2007, 

including Delta-Northwest (2008), United-Continental (2010), SouthwestAirTran (2011), and American-US Airways (2013). These mergers and 

acquisitions allowed the airlines to achieve efficiencies by reducing 

redundant capacity and eliminating inefficient operations at hub airports.31

Prior to their merger, for example, Delta used Cincinnati as a hub for air 

traffic in the Midwest, while Northwest relied on Memphis as its hub in the 

Southeast. Through its merger with Northwest, however, Delta gained a 

more attractive hub for Midwestern traffic in Detroit to accompany its hub 

in Atlanta and subsequently downsized Cincinnati and Memphis as hubs 

in its network.

Low-cost airlines have not achieved the same cost reductions since 2007 

that network airlines have accomplished, and instead have experienced 

rising unit costs. For example, fuel costs rose for both network and lowcost airlines during the recent recession, and now comprise a greater 

percentage of airlines’ operating costs. From 2007 through 2012, for 

example, fuel costs grew from 31 to 38 percent of operating costs for lowcost airlines, and from 26 to 29 percent of network airline operating costs. 

Much of this growth for low-cost airlines can be attributed to Southwest 

Airlines, the largest low-cost airline. Southwest’s fuel costs grew from 30 

percent of operating costs in 2007 to 37 percent in 2012.32 According to 

an industry analyst’s report, the impact of higher fuel prices has been 

greater for low-cost airlines.33 This has occurred, in part, because lowcost airlines have reduced aircraft utilization, or the average number of 

hours that an aircraft is in flight in a 24-hour period. For example, higher 

fuel prices have made off-peak flying—i.e., flights that depart in the early 

 

31GAO-08-845. 

32The cost of fuel for airlines reflects both the price of fuel at any given time and airline 

fuel hedging strategies. Airlines have used fuel hedges—contracts that are designed to 

provide more certainty over the future price of fuel—to reduce the effects of fuel price 

volatility on their earnings. However, airlines incurred substantial losses because of the 

downside risk to their hedges (i.e., exposure to financial losses) when fuel prices fell in 

2008. For example, Southwest’s average fuel cost per gallon, including hedging, 

increased 35.6 percent in 2008 and contributed to a $342 million, or 43.2 percent, 

decrease in the company’s operating income that year. 

33Bank of America Merrill Lynch, Airlines Primer: Changing dynamics improve supply 

discipline, by Glenn D. Engel and David van der Keyl (New York: 2013).
 

Page 20 GAO-14-515 Airline Competition

morning or late evening carrying fewer passengers—less attractive for 

low-cost airlines as these flights are less profitable, and unit costs 

increased as a result.

Non-fuel unit costs, measured as cost per available seat mile excluding 

fuel costs, have also steadily increased for low-cost airlines since 2007, 

while network airlines’ non-fuel unit costs have only slightly increased. A 

2008 academic study found that the non-fuel cost advantage (excluding 

fuel and transport expenses) low-cost airlines have had over network 

airlines narrowed from 2000 to 2006, and we found that this trend has 

continued to 2012, as shown in figure 6 below.34 Non-fuel unit costs for 

network airlines increased about 14 percent from approximately $0.08 per 

available seat mile in 2007 to $0.09 in 2012, while low-cost airline nonfuel unit costs rose nearly 24 percent from approximately $0.06 to 

$0.08.35 An industry analyst report attributes the increase in low-cost 

airlines’ non-fuel unit costs to the effects of the recent recession, which, 

by slowing low-cost airline growth, led to increased average 

compensation and maintenance costs for low-cost airlines as their fleets 

and workforce have matured.36 Although the gap between network and 

low-cost airlines’ non-fuel unit costs has narrowed since 2007, some 

academic experts point to a structural gap in costs between network and 

low-cost airlines that is unlikely to reduce further, as the costs associated 

with the extensive networks and air-transportation service network that 

airlines provide are inherently greater than those for low-cost airline 

service.37

 

34Gerassimos Tsoukalas, Peter Belobaba, and William Swelbar, “Cost Convergence in the 

US Airline Industry: An Analysis of Unit Costs 1995-2006,” Journal of Air Transport 

Management, vol.14 (2008).

35To compare costs across airline segments, we excluded (1) transport-related expenses, 

as these are primarily payments made by network airlines to regional airlines for service to 

smaller cities on their behalf, and (2) fuel expenses, as reported fuel costs are not always 

comparable due to the use of fuel hedging strategies.

36Bank of America Merrill Lynch, Airlines Primer: Changing dynamics improve supply 

discipline. 

37Tsoukalas, Belobaba, and Swelbar, “Cost Convergence in the US Airline Industry.”
 

Page 21 GAO-14-515 Airline Competition

Figure 6: Unit Costs, Excluding Fuel and Transport Expenses, Network and LowCost Airlines, 2007–2012

Note: Unit costs, or cost per available seat mile, are calculated as operating expenses divided by total 

available seat miles.

Since 2007, there has been little change in the average number of 

competitors in the most heavily traveled domestic markets. In addition, 

the markets serving the most passengers were less concentrated than 

the markets serving the fewest passengers. These results do not factor in 

market changes from the 2013 merger between American Airlines and 

US Airways, but they do account for some of the market changes that 

may have occurred through the other three mergers that occurred from 

2008 to 2011. The effect of airline mergers on the structure of individual 

city-pair markets may not be immediate as it can take years for merging 

airlines to fully integrate. Fewer competitors might have been expected in 

some markets as a result of the merger activity, and although we did find 

fewer competitors in some markets, in other markets we found that the 

number of competitors actually increased. The latter results may have

occurred in part due to growth in network size and new connections 

created since the mergers. In addition, we found that since 2007, low-cost 

Despite Industry 

Consolidation, the 

Average Number of 

Competitors Has Not 

Substantially 

Changed in the 

Markets Traveled by 

the Majority of 

Passengers
 

Page 22 GAO-14-515 Airline Competition

airlines have expanded into the largest passenger markets, adding new 

competitors in some markets where mergers may have reduced 

competition.

To perform our market structure analysis, we used DOT’s Origin and 

Destination Survey data, which is a 10-percent quarterly sample of all 

airline tickets sold. We assessed approximately 91,000 U.S. markets with 

passenger traffic each year from 2007 through 2012; therefore, several 

mergers were completed during the time period covered by this analysis. 

We filtered the data to include only those markets with at least 520 oneway passengers or 1,040 round-trip passengers because markets with 

fewer passengers would be too small to ensure statistical accuracy. We 

also excluded markets in Alaska and Hawaii.38 This filter removed 6 

percent of the passengers from the full dataset.39 We primarily used the 

city-pair market as our unit of analysis, meaning that travel between two 

metropolitan areas is the relevant market.40 For each of the 6 years, we 

then categorized the markets into quintiles based on the total number of 

passengers in our sample, and for every year, traffic was segregated so 

that each quintile contained approximately 20 percent of the total 

passengers for that year. However, because the passenger traffic is not 

evenly distributed across all city-pair markets, the corresponding number 

of city-pair markets in each quintile differs substantially (see table 1).

 

38These are the same minimum passenger counts we have used as a threshold for our 

analyses in previous reports. We excluded Alaskan and Hawaiian destinations because 

cost and competitive conditions involving these destinations are likely to be considerably 

different than routes within the continental U.S. 

39While this analysis retained 94 percent of all passengers, it only retained 14 percent of 

the routes as defined by a specific combination of two endpoint airports after applying the 

passenger-count filter screen. As we noted, data on routes with very few passengers are 

not robust enough to ensure statistical accuracy. Moreover, such cases may be indicative 

of errors in the data, or routes that are travelled so rarely that they are not representative 

of the industry more broadly and are thus not appropriate to include in this analysis. 

40If there was more than one airport in a metropolitan area, we aggregated traffic from 

those airports. Thus, for the New York City to Chicago city-pair market, all traffic between 

the two major commercial airports in Chicago and the three major commercial airports in 

the New York City area were aggregated to include all city-pair traffic. 

Analysis of City-Pair 

Market Quintiles
 

Page 23 GAO-14-515 Airline Competition

Table 1: Example of Number of City-Pair Markets and Passengers per Quintile, 2012

Market Segment

Number of

City-Pair Markets

Number

of Passengers

1st quintile 37 82,965,329

2nd quintile 99 81,452,273

3rd quintile 237 81,980,327

4th quintile 682 82,009,532

5th quintile 9,379 82,099,635

Total 10,434 410,507,096

Source: GAO analysis of DOT data.

Because certain routes carry many more passengers than others, the first 

quintile includes the most heavily traveled city-pair markets, while the fifth 

quintile includes the least-traveled city-pair markets in the sample. For 

instance, in 2012, about 83 million passengers—or about 20 percent of 

the approximately 411 million passengers in our sample—traveled in 37 

city-pair markets in the first quintile. We refer to the markets in the first 

quintile as the largest markets. Examples include New York to Los 

Angeles and Washington, D.C. to Boston. Conversely, approximately 82 

million passengers in the fifth quintile spread their flying across more than 

9,300 markets, meaning that these city-pair markets are some of the 

least-traveled domestic routes. Likewise, we refer to the markets in the 

fifth quintile as the smallest markets. Examples include Pittsburgh, 

Pennsylvania to Bangor, Maine, and Spokane, Washington to Billings, 

Montana.

We found that there has been little change in the average number of 

effective competitors across the markets in our analysis from 2007 

through 2012.41 For example, during this period, the average number of 

effective competitors each year ranged from 4.3 to 4.5 in the markets 

represented in the first quintile (see fig. 7). The average number of 

effective competitors in the markets represented in the second quintile 

increased slightly from 3.7 in 2007 to 3.9 in 2012. On the other end of the 

spectrum, there has been a small decrease in the average number of 

effective competitors serving the smallest markets represented in the fifth 

 

41As previously noted, we define an effective competitor as any airline that carries at least 

5 percent of the traffic in a given market.

Since 2007, the Average 

Number of Competitors 

Has Changed Little in the 

Most Heavily Traveled 

Markets
 

Page 24 GAO-14-515 Airline Competition

quintile. Specifically, the average number of competitors fell from 3.3 to 3 

between 2007 and 2012 in these small markets.42 See appendix II for the 

full results of our analysis.

Figure 7: Average Number of Effective Competitors in U.S. Passenger Airline 

Industry by City-Pair Market Size, 2007–2012

Note: Each quintile contains approximately the same number of passengers, but the number of citypair markets differs. For example, in 2012 the first, second, third, fourth, and fifth quintile contained 

37, 99, 237, 682, and 9,379 city-pair markets, respectively, each with 20 percent of the 411 million 

passengers in our sample.

 

42To further assess trends in the smallest markets, we also categorized the markets into 

quintiles based on the total number of markets—rather than by passengers—in our 

sample. As such, each quintile contained 20 percent of the total markets, but the 

corresponding number of passengers in each quintile differed. For instance, each quintile 

contained about 2,087 markets in 2012, but the first quintile contained about 367 million 

passengers or about 89 percent of the total, while the fifth quintile contained about 3 

million passengers or less than one percent of all passengers. When analyzed this way, 

we found that the average number of effective competitors in the smallest markets 

represented in this fifth quintile had fallen only slightly from 2.2 in 2007 to 2.1 in 2012. 
 

Page 25 GAO-14-515 Airline Competition

Across all city-pair markets in our sample, we also observed a small 

increase in the percentage of dominated markets—in which one airline 

has at least 50 percent of all passenger traffic—but at the same time, a 

decrease in the percentage of monopoly markets, which are markets with 

only one provider. In 2007, approximately 72 percent of all city-pair 

markets were dominated markets; however, about 77 percent of all 

markets were dominated in 2012. Consequently, while the average citypair market quintile may have between 3 and 4.5 effective competitors, as 

shown in the figure above, more than three-quarters of markets are 

dominated by a single airline. Although there were more dominated 

markets by the end of 2012, further analysis shows that the number of 

monopoly markets decreased from 1,712 in 2007 to 1,566 in 2012 

(approximately a 9 percent decrease). Overall, we found that nearly all of 

the monopoly markets were the least-traveled markets, which is not 

surprising as markets with lower demand would be less likely to support 

more than one airline.43

We also calculated the Herfindahl-Hirschman Index (HHI) to measure 

trends in market concentration in city-pair markets. HHI is calculated by 

summing the squares of the individual firms’ market shares, and thus 

gives proportionately greater weight to the larger market shares.44 Thus, if 

a market is characterized by one large firm and many small firms, the HHI 

will capture that the market is fairly concentrated, even though there are 

many firms. HHI results can range from close to zero (least concentrated) 

to 10,000 (most concentrated). DOJ generally classifies markets into 3 

types: (1) un-concentrated markets have an HHI below 1,500; (2) 

moderately concentrated markets have an HHI between 1,500 and 2,500; 

and (3) highly concentrated markets have an HHI above 2,500. According 

to DOJ, measuring market concentration through the HHI is a means to 

measure trends in market structure, which can provide some evidence of 

the extent of competition in the market, but is not an end in itself. Notably, 

 

43When we evaluated the number of monopoly markets using airport-pairs as the relevant 

market definition, we found similar results. For example, nearly all of the monopoly 

markets were found in the least-traveled markets and the percentage of monopolies in the 

most-heavily traveled markets decreased from about .08 percent in 2007 to about .05 

percent in 2012. 

44For example, a market consisting of four firms—two of which have market shares of 30 

percent and two of which have market shares of 20 percent—has an HHI of 2,600 (302 + 

302 + 202 + 202 = 2,600). Although it is desirable to include all firms in the calculation, 

information about firms with small shares is not critical because such firms do not affect 

the HHI significantly. 
 

Page 26 GAO-14-515 Airline Competition

concentration may not fully reflect the competitive significance of firms in 

the market, or the extent to which other factors—such as entry 

conditions—might also influence the extent of competition in the market.

We found that the markets serving the most passengers were less 

concentrated than the markets serving the fewest passengers. Moreover, 

there was a slight reduction in concentration in the highest-traveled 

markets represented in the first quintile from 2007 through 2012 (see fig. 

8). The notable exception to that trend is the slight increase in 

concentration in those markets beginning in 2011. This corresponds to 

the slight decrease in effective competitors in those markets during this 

same time period and may represent the effect of recent airline mergers 

as consolidation has reduced the number of competitors overall. In the 

smallest passenger markets represented in the fifth quintile, market 

concentration as measured by the HHI has increased from 2009 through 

2012.45

 

45As mentioned previously, we also categorized the markets into quintiles based on the 

total number of markets—rather than by passengers—in our sample. When analyzed this 

way, we found that the smallest markets represented in the fifth quintile were much more 

concentrated than the largest markets in the first quintile and concentration as measured 

by the HHI increased from 2009 through 2012. 
 

Page 27 GAO-14-515 Airline Competition

Figure 8: Market Concentration in U.S. Passenger Airline Industry by City-Pair 

Market Size, 2007–2012

Note: Each quintile contains approximately the same number of passengers, but the number of citypair markets differs. For example, in 2012 the first, second, third, fourth and fifth quintile contained 37, 

99, 237, 682, and 9,379 city-pair markets, respectively, each with 20 percent of the 411 million 

passengers in our sample.

Because our analysis of effective competitors and market concentration is 

an average over a large number of markets, substantial changes that 

have occurred in some markets since 2007 may be obscured. Several 

examples help illuminate some of the changes in the number of 

competitors in certain markets:

• New York City (JFK) to Los Angeles (LAX): The number of effective 

competitors offering direct or connecting service in this first-quintile 

market increased from three to five between 2007 and 2012, as new 

low-cost airlines entered this market. In 2007, this market was 

dominated by one airline, but by 2012 no airline had more than 28 

percent of the total passenger traffic.
 

Page 28 GAO-14-515 Airline Competition

• Salt Lake City (SLC) to Memphis (MEM): The number of effective 

competitors offering direct or connecting service in this fifth-quintile 

market fell from six to two between 2007 and 2012,46 in part, because 

of airline consolidation and changing airline business strategies, such 

as decisions to reduce service to former hubs. In 2007, no airline had 

more than 44 percent of the market share; however, by 2012 Delta Air 

Lines had over 80 percent of the market, reflecting a high degree of 

concentration.

• Boise, Idaho (BOI) to Bozeman, Montana (BZN): The number of 

effective competitors offering direct or connecting service in this fifthquintile market fell from three to one from 2007 to 2012.

Despite greater consolidation in the U.S. airline industry and restraint on 

the part of airlines in managing capacity, two factors may help explain 

why many markets maintained approximately the same number of 

effective competitors:

• Mergers created new connections: When two airlines merge and 

combine their networks, the merged airline can connect consumers to 

more destinations within its network than previously possible. One 

rationale given for the mergers between Delta Air Lines and 

Northwest Airlines and United Airlines and Continental Airlines was 

the greater scope and scale of the combined network. We found in 

2010 that merging two networks expands choice by increasing the 

number of possible routings served by a network, as well as the 

number of passengers who can be served, and the ways that they can 

be served.47 For example, we found in 2010 that the combination of 

United and Continental created a new effective competitor in 173 

markets affecting 9.5 million people. For example, before the merger, 

United provided service to Hector International Airport in Fargo, North 

Dakota, and Continental provided service to Rick Husband Amarillo 

International Airport in Amarillo, Texas, but there was no connection 

between these two communities on either United or Continental. 

Beginning in 2012, the new United Airlines began providing 

connecting service via Denver International Airport.

 

46Several competitors on the Salt Lake City-Memphis route had less than 5 percent 

market share and therefore were not included in our analysis. 

47GAO-10-778T. 
 

Page 29 GAO-14-515 Airline Competition

• Low-cost airlines have expanded into new markets: Based on our 

analysis, we found that low-cost airlines expanded most rapidly into 

the largest passenger markets between 2007 and 2012. For example, 

in 2007 there was an average of 1.7 low-cost airlines in the largest 

passenger markets represented in the first quintile of our analysis, but 

by 2012 there were 2.3 low-cost airlines on average in those markets. 

For example, low-cost airline entry provided new competitors in the 

New York-to-Los Angeles market. In the smallest passenger markets, 

i.e., the fifth quintile, the number of low-cost airlines has essentially 

remained flat between 2007 and 2012.

Additional changes to the structure of the market may occur after the 

three recent airline mergers are fully implemented and conditions for 

approving the fourth and most recent merger are fully met, as well as due 

to other economic circumstances. We have found that it can take some 

time for airlines to merge their operations, technologies, and labor 

forces.48 For instance, in 2013 we found that United struggled to integrate 

computer and reservation systems following its merger with Continental in 

2010. Also, pursuant to an agreement with the states that had joined the 

DOJ action to enjoin the proposed merger between American and US 

Airways, the new American Airlines agreed to keep seven current hubs 

for a period of 3 years. Those hubs include Charlotte Douglas 

International Airport, Chicago O’Hare International Airport, Los Angeles 

International Airport, Miami International Airport, John F. Kennedy 

International Airport, Philadelphia International Airport, and Phoenix Sky 

Harbor International Airport. However, the airline’s business strategy 

could change in the future. For instance, even though in 2010 the state of 

Ohio and United signed a similar agreement that guaranteed hub-level 

service at Cleveland Hopkins International Airport, United recently 

announced that it would no longer be using that airport as a hub.

We also evaluated trends in the number of effective competitors and 

concentration in terms of the distance of the market. We found that 

longer-distance markets (greater than 1,000 miles) continue to have more 

competitors than shorter-distance markets (less than 250 miles) and that 

the average number of effective competitors from 2007 through 2012 has 

changed little in each distance category.49 For example, we found that in 

 

48GAO-13-403T. 

49Similarly, in July 2008, we found that longer-distance markets are more competitive than 

shorter-distance markets. See GAO-08-845. 
 

Page 30 GAO-14-515 Airline Competition

2012 there was an average of 4.1 competitors in markets longer than 

1,000 miles, compared to only 3.2 in markets shorter than 250 miles. 

Based on the HHI, we also found that longer-distance markets are 

generally less concentrated than shorter-distance markets. The difference 

exists in large part because longer-distance markets have more viable 

options for connecting passengers over more hubs. For example, a 

passenger on a flight from Richmond, Virginia to Salt Lake City, Utah—a 

distance of about 2,000 miles—could not fly directly, but would have 

multiple connecting options, including through Hartsfield-Jackson Atlanta 

International, Chicago O’Hare International, and Dallas/Fort Worth 

International Airports. By comparison, a passenger from Seattle to 

Portland, Oregon—a distance of just under 300 miles—has no viable 

connecting options, nor would connections be as attractive to passengers 

in short-haul markets.

We also found that the number of airlines with a dominant position—

carrying at least 50 percent of all domestic passenger traffic—at the 

largest airports in the U.S. is relatively unchanged from 2007 through 

2012. For example, 13 of the 29 large-hub airports in 2012 were 

dominated by a single airline, up from 12 in 2007.50 The majority of the 

large-hub airports were dominated by network airlines and at some of 

these airports, the dominant airline increased its market share. For 

example, Delta Air Lines increased its proportion of passenger traffic at 

Hartsfield-Jackson Atlanta International Airport from about 53 percent in 

2007 to nearly 62 percent in 2012. However, American Airlines’ dominant 

position at Dallas/Fort Worth International Airport declined from about 70 

percent to 65 percent from 2007 through 2012 owing to multiple factors, 

including the entry of low-cost airlines at that airport. Low-cost airlines 

were dominant at two large-hub airports in 2012. For example, Southwest 

Airlines increased its dominant position at Chicago Midway International 

Airport from 74 percent of passenger traffic to 85 percent from 2007 

through 2012. Airlines also increased their dominant position at mediumhub airports. In 2012, 15 of the 35 medium-hub airports were dominated 

by a single airline, up from 11 in 2007, and most of these airports were 

dominated by low-cost airlines. Nineteen of the 74 small-hub airports in 

 

50The groups of large-, medium-, and small-hub airports in this analysis are based on 

2012 data. We used the same group of airports for each year from 2007-2012 in order to 

compare across years.

The Number of Dominated 

Large- and Medium-Hub 

Airports Has Generally 

Remained the Same since 

2007
 

Page 31 GAO-14-515 Airline Competition

2012 were dominated by a single airline, up from 13 in 2007, and most of 

these airports were also dominated by low-cost airlines.

Generally, the average market share of the largest airline that operates at 

the nation’s large-, medium-, and small-hub airports has not changed 

substantially since 2007. We found that since 2007, the average market 

share of the largest airline at the 29 large-hub domestic airports increased 

about 8.5 percent overall, from about 43 percent to just over 46 percent of 

passenger traffic. However, on average, the largest airline at the nation’s 

35 medium-hub airports held about 43 percent of the passenger traffic in 

2007 and just over 46 percent in 2012. The average market share of the 

largest airline at the 74 small-hub airports grew the most from 

approximately 28 percent in 2007 to over 45 percent in 2012. Similarly, 

using the HHI measure of concentration, we found that larger airports 

have on average become less concentrated, while smaller airports have 

become on average slightly more concentrated during the same time 

period.51

 

51Specifically, larger airports with the most passenger traffic experienced about a 14.5 

percent reduction in concentration, driven by an increase in the number of competitors in 

these markets from 2007 to 2012. Most of those increases are due to low-cost airline 

entry. For smaller airports, concentration levels generally remained flat or increased 

slightly. For airports in the smallest quintile, for example, the HHI increased about 6 

percent from 2007 to 2012.

Consumers Have 

Experienced a Rise in 

Fares, Additional 

Fees, and Fewer 

Flights in Certain 

Markets, but Benefit 

from New Services 

and Expanded 

Networks
 

Page 32 GAO-14-515 Airline Competition

As the economy has been slowly recovering from the recent recession, 

demand for air travel has also been recovering. As noted previously, 

increased demand, along with airline capacity restraint, has contributed to 

higher fares. We found that consumers paid approximately 4 percent 

more in real terms, on average, for air travel in 2012 than they did in 

2007. For instance, according to DOT, in 2007, the average one-way, 

inflation-adjusted domestic fare was $182.72 and in 2012 was $190.10. A 

recent study found that average one-way, inflation-adjusted airfares 

increased the most at medium-hub airports, and to a lesser extent at 

large- and small-hub airports from 2007 through 2012.52 Fares include 

only the price paid for the ticket purchase and do not include taxes or 

other fees, such as baggage fees. Specifically, average fares at mediumhub airports, which also experienced the greatest capacity cuts, 

increased nearly 12 percent, whereas they increased by 8.7 percent on 

average at large-hub airports and 5.7 percent at small-hub airports over 

the 6-year period. Fares have continued to rise since 2012. According to 

DOT, the average domestic airfare increased 5 percent from the third 

quarter of 2012 to the third quarter of 2013, the latest time period for 

which data were available.

Two factors likely have contributed to higher average airfares from 2007 

through 2012:

• Capacity restraint: As discussed above, beginning in 2007, network 

airlines reduced domestic capacity in response to challenging 

economic conditions, and since 2009, available seat miles have not 

rebounded despite increased demand for air travel. As a result, 

domestic airlines have been flying fuller flights. According to wellestablished principles of supply and demand, a reduction in supply 

with constant or increasing demand will typically lead to higher prices. 

Medium-hub airports, which have lost the most service, have also 

seen the greatest airfare increases. In particular, several academic 

and research experts we spoke to said that airlines are now managing 

their growth carefully in an attempt to reduce costs and raise yields, 

which are the average fares paid per passenger mile. Additionally, 

according to several network airline representatives, airlines are 

 

52See Michael D. Wittman and William S. Swelbar, Evolving Trends of U.S. Domestic 

Airfares: The Impacts of Competition, Consolidation, and Low-Cost Carriers, 

Massachusetts Institute of Technology International Center for Air Transportation (Aug. 

2013). 

Domestic Fares Have 

Recently Risen
 

Page 33 GAO-14-515 Airline Competition

prioritizing high-yield markets. That is, instead of operating at prerecession levels throughout their networks, network airlines are 

allocating capacity across markets in order to maintain more capacity 

on the most profitable routes and limit capacity in markets that are 

less profitable. According to several academic and research experts 

we spoke with, the reduction in the number of network airlines as a 

result of consolidation has made it easier for the remaining airlines to 

maintain this strategy.

• Low-cost airlines are exerting less pressure on fares: While lowcost airlines continue to offer lower fares on average than network 

airlines,

53 recent trends suggest that the fare-reducing effect of entry 

by the largest low-cost airline in certain markets may be waning.54

Typically, this phenomenon, which has been referred to as the 

“Southwest effect,” occurs when a low-cost airline enters or is present 

in a market and offers lower fares than incumbent airlines, which in 

turn causes those incumbent competitors to respond by lowering 

prices in that market. These lower fares may also stimulate new 

demand and additional traffic. However, a recent Massachusetts 

Institute of Technology (MIT) study found that Southwest Airlines no 

longer seems to have the price disciplining effect it once had.55 From 

2007 through 2012, according to the study, fares increased the most

 

53Prior studies have demonstrated the effect of airline competition on airfares and shown 

that the presence of low-cost airlines in a market is associated with lower fares for all 

passengers in that market. For a recent comprehensive analysis of airline competition and 

domestic airfares, see Jan K. Brueckner, Darin Lee, and Ethan S. Singer, “Airline 

Competition and Domestic U.S. Airfares: A Comprehensive Reappraisal,” Economics of 

Transportation, vol. 2 (2013). See also John Kwoka, Kevin Hearle, and Phillippe Alepin, 

“Segmented Competition in Airlines: The Changing Role of Low-Cost and Legacy Carriers 

in Fare Determination,” Social Science Research Network (2013); Mehdi Ben Abda, Peter

Belobaba, and William Swelbar, “Impacts of LCC Growth on Domestic Traffic and Fares at 

Largest U.S. Airports,” Journal of Air Transport Management, vol. 18 (2012); Steven 

Morrison, “Actual, Adjacent, and Potential Competition: Estimating the Full Effect of 

Southwest Airlines,” Journal of Transport Economics and Policy, vol. 35 (2001); and 

Martin Dresner, Jiun-Sheng Chris Lin and Robert Windle, “The Impact of Low-Cost 

Carriers on Airport and Route Competition,” Journal of Transport Economics and Policy, 

vol. 30 (1996). 

54DOJ and DOT’s analysis of merger impacts have relied on an expectation that entry by 

low-cost airlines, especially Southwest Airlines, would check airline fare increases 

following a merger. We found recently that Southwest expansion has slowed and its 

acquisition of Air Tran, a low-cost rival, may challenge post-merger fare increases. See 

GAO-13-403T. 

55Wittman and Swelbar, Evolving Trends of U.S. Domestic Airfares. 
 

Page 34 GAO-14-515 Airline Competition

at three airports where a significant percentage of flights were 

operated by Southwest, including Chicago Midway International 

Airport, Love Field in Dallas, and William P. Hobby Airport in Houston. 

Since capacity changes at these airports were relatively low, the study 

suggested that Southwest had demonstrated a widespread pattern of 

fare increases, but noted that two of the airports saw large increases 

in average passenger itinerary distance as Southwest expanded the 

types of markets served from William P. Hobby Airport and Love Field 

from 2007 through 2012, a change that could explain the higher fares. 

Nevertheless, the MIT study also noted that average fares increased 

23 percent at Chicago Midway International Airport despite a 

negligible change in passenger itinerary distance. Moreover, 

Southwest’s strategy has evolved since 2007 as the airline has 

started to move into larger airports and business markets, thereby 

contributing to an increase in its costs and average fares.

Another trend affecting consumers is the widespread and increasing use 

of ancillary fees by airlines. As previously discussed, airlines have 

imposed a variety of ancillary fees on a range of optional services, such 

as checked and carry-on bags, meals, blankets, early boarding and seat 

selection. Many airlines rely on these ancillary fees as a substantial 

portion of their operating revenues. “Unbundling” airfares through the use 

of ancillary fees can be advantageous from the airlines’ perspective by 

allowing them to better differentiate their products, boost revenue, and 

build passenger loyalty. Ancillary fees enable airlines to collect revenues 

in a manner that, in some cases, more closely matches passengers’ use 

of airline services to the costs of providing those services. For example, 

providing service for checked bags is costly for airlines, but only certain 

customers use the service, so charging for checked bags imposes those 

costs only on those who choose to use the service. Ancillary fees may 

also be used as a means to differentiate among passengers and gain 

more revenues by charging for amenities that some customers may value 

more highly—and are more willing to pay for—than other customers, even 

though the cost of providing the amenity may be negligible. For example, 

by charging a fee to choose a more desirable seat on the aircraft, airlines 

are able to earn more revenue by providing an enhanced product offering 

to certain consumers, even though, in this case, the cost of providing the 

more highly valued seat is negligible.

For certain consumers, the ability to pay for particular services they 

desire, such as Wi-Fi or in-flight entertainment, may represent a positive 

development. For other consumers, however, certain ancillary fees may 

not seem truly optional and may increase the overall cost of flying. For 

Consumers Are Paying 

More in Ancillary Fees, but 

those Fees Are Not 

Always Fully Disclosed at 

Time of Purchase
 

Page 35 GAO-14-515 Airline Competition

example, a family of five traveling on vacation may pay in excess of $100 

for checked bags that they could not carry on board in addition to the 

base airfare. A recent study that investigated the impact of bag fees on 

airfares between 2008 and 2009 found that when airlines introduced bag 

fees in 2008, fares fell by about 3 percent, but the total cost of travel was 

higher for passengers who checked bags.56 According to our analysis of 

DOT data, the U.S. airline industry collected nearly $6 billion in baggage 

fees and reservation cancellation charges in 2012, but, as noted above, 

the total ancillary revenue collected from passengers is unknown as these 

fees are not reported separately to DOT. Moreover, consumers may not 

have full information about the true cost of air travel at the time they 

purchase their ticket. We previously found that information about ancillary 

fees is not fully disclosed through all ticket distribution channels used by 

consumers, making it difficult for them to compare the total cost of flights 

offered by different airlines.

57 This issue is discussed further in the next 

section of this report.

U.S. airlines, in particular network airlines, have reduced the number of 

flights they offer passengers in certain markets. For instance, according 

to our analysis of DOT data, about 1.2 million scheduled domestic flights 

were eliminated from 2007 through 2013 at large-, medium-, and smallhub, and nonhub airports. Scheduled departures at medium-hub airports 

decreased nearly 24 percent between 2007 and 2013, compared to a 

decrease of about 9 percent at large-hub airports and about 20 percent at 

small-hub airports over the same time period (see fig. 9). Medium-hub 

airports also experienced the greatest percentage reduction in air service 

as measured by available seats. As we discussed previously, mergers—

which have allowed airlines to reduce redundant capacity and eliminate 

hub airports—and capacity restraint have resulted in a reduction of flights 

across the country. In addition, we recently found that air service to small 

 

56Jan K. Brueckner, Darin N. Lee, Pierre M. Picard, and Ethan Singer, “Product 

Unbundling in the Travel Industry: The Economics of Airline Bag Fees,” Journal of 

Economics and Management Strategy (Forthcoming). The study tested the hypothesis 

that, other things being equal, fares are lower after the adoption of bag fees than before 

and showed business fares are less affected than leisure fares by the imposition of bag 

fees. 

57GAO, Commercial Aviation: Consumers Could Benefit from Better Information about 

Airline-Imposed Fees and Refundability of Government-Imposed Taxes and Fees, 

GAO-10-785 (Washington, D.C.: July 14, 2010). 

By Reducing Service to 

Medium- and Small-Hub 

Airports, U.S. Airlines Offer 

Consumers Fewer 

Domestic Flights
 

Page 36 GAO-14-515 Airline Competition

communities has declined since 2007 due, in part, to higher fuel costs, 

consolidation, and reduced demand from declining populations and as a 

result of some passengers opting to drive to larger markets with more 

attractive service (i.e. larger airports in larger cities).58 A recent MIT study 

on domestic air service trends reported similar results and found that the 

prolonged economic downturn, high fuel prices, and capacity restraint 

contributed to a reduction in service.59 The study concluded that airlines 

have been consolidating service at the nation’s largest airports, while 

cutting back on service to medium- and small-hub airports.

Figure 9: Percentage Change in Number of Flights and Available Seats by Airport 

Category, 2007–2013

Note: Large-hub airports have at least 1 percent of all passenger boardings. Medium-hub and smallhub airports are defined as having between 0.25 and 1 percent, and 0.05 and 0.25 percent, 

respectively. Nonhub airports enplaned at least 10,000 passengers, but no more than 0.05 percent of 

all passenger boardings. The groups of large-, medium-, and small-hub and nonhub airports in this 

analysis are based on 2012 data. 

We previously found that the percentage of flights that are canceled or 

diverted has been higher at airports in small rural communities than in 

large metropolitan areas.60 One side effect of this trend is long travel 

 

58GAO, Commercial Aviation: Status of Air Service to Small Communities and the Federal 

Programs Involved, GAO-14-454T (Washington, D.C.: Apr. 30, 2014). 

59Michael D. Wittman and William S. Swelbar, Trends and Market Forces Shaping Small 

Community Air Service in the United States, Massachusetts Institute of Technology

International Center for Air Transportation (May 2013).

60See GAO, Airline Passenger Protections: More Data and Analysis Needed to 

Understand Effects of Flight Delays, GAO-11-733 (Washington, D.C.: Sept. 7, 2011). 
 

Page 37 GAO-14-515 Airline Competition

delays. According to one academic study, the overall delay time in 2010 

for passengers on canceled flights was about 5 hours.61 This effect is 

further exacerbated by the increase in domestic passenger load factors 

from 2007 through 2012 (see fig. 10 below).62 Flight disruptions, including 

delays and cancellations, are costly for passengers, airlines, and the 

economy.63 In recent years, roughly a quarter of all commercial flights 

have been delayed or canceled. Given that most flights in recent years 

tend to have fewer empty seats available, passengers on delayed or 

canceled flights often have limited opportunities to rebook on other flights, 

amplifying the disruptions and associated costs. These disruptions may 

be particularly challenging for smaller communities that have infrequent 

service.

 

61Lance Sherry, “Passenger Trip Delay Statistics for 2010,” Transportation Research 

Board, 2012. 

62Load factors represent the proportion of airline output that is actually consumed and are 

calculated by dividing revenue passenger miles by available seat miles. 

63The DOT Inspector General (IG) has recently found that when airline markets became 

less competitive both the average length of flight delays and percentage of late flights 

increased. See DOT IG Reductions in Competition Increase Airline Flight Delays and 

Cancellations, CR-2014-040 (Washington, D.C.: Apr. 23, 2014). 
 

Page 38 GAO-14-515 Airline Competition

Figure 10: Passenger Load Factors, U.S. Passenger Airline Industry, 2007–2012

Note: “Load factor” represents the proportion of available seats that are actually occupied by 

passengers.

Reduced service at certain airports can be attributed to several factors, 

including:

• Elimination of hubs: Merging airlines expect to rationalize their 

combined networks, including hub locations, over time, in order to 

achieve economies of scale and reduce inefficiencies.64 For example, 

in 2010 we found that the combined United and Continental Airlines 

would be unlikely to retain eight domestic hubs, especially given the 

considerable overlap between markets served by United out of 

Chicago and Continental out of Cleveland. On February 1, 2014, 

United officially announced that it was substantially reducing 

operations at the Cleveland Hopkins International Airport, citing lower 

demand at that airport. Similarly, following its merger with Northwest 

Airlines, Delta has substantially reduced operations through Memphis

International Airport, which had been a hub for Northwest and is 

located near Hartsfield-Jackson Atlanta International Airport, Delta’s 

 

64GAO-10-778T. 
 

Page 39 GAO-14-515 Airline Competition

largest hub. Airline strategies that reduce or limit service to certain 

airports can have consequences for the local communities. For 

instance, losing connectivity to major domestic and international 

markets may reduce the vitality of the local economy. In addition, 

fewer flights can make it more difficult for airports to cover the costs of 

their infrastructure.65

• Less frequent flights and “up-gauging” aircraft: As discussed 

above, in some instances, airlines have reduced the frequency of 

flights on certain routes that are less profitable. Instead of flying 

multiple daily flights to certain airports on smaller regional aircraft, 

airlines are flying less frequently but using larger aircraft (referred to 

as “up-gauging” service) and routing that traffic to large-hub airports. 

As shown above in figure 9, the percentage reduction in the number 

of flights exceeds the reduction of available seats from 2007 through 

2012, particularly for smaller airports. In other instances, airlines may 

be eliminating flights altogether on some routes that used smaller 

planes. According to one airline executive we spoke with, up-gauging 

may be less convenient for consumers who value frequent flights, but 

it can be beneficial if the consumer seeks to connect through major 

hub airports. It can also reduce congestion, leading to fewer flight 

delays. Our analysis of DOT data shows that the average number of 

seats per flight has increased slightly for all airports in the country, 

with the trend of up-gauging most notable at medium- and small-hub 

airports (see fig. 11).

 

65Funding for airport capital development comes from four primary sources: federal Airport 

Improvement Program (AIP) grants, passenger facility charges (PFCs), municipal bonds, 

and state and local grants. Airports vary in their reliance on these sources of funds. The 

Federal Aviation Administration allocates most AIP grants on the basis of (1) a legislated 

apportionment formula tied to the number of passengers an airport enplanes in the case of 

primary airports, and (2) set-aside categories earmarked for specific types of airports and 

projects. PFCs, which are collected from passengers, were introduced in 1990 to finance 

local airport infrastructure projects at commercial airports. In 2000, the Wendell H. Ford 

Aviation Investment and Reform Act for the 21st Century (AIR-21) raised the cap on PFCs 

from $3.00 to $4.50 per boarding passenger. Pub. L. No. 106-181, § 105, 114 Stat.61, 71 

(2000). Airports have long sought to increase the PFC cap, arguing that it has not been 

adjusted for inflation, but airlines oppose any PFC rate increase that inhibits the demand 

for air travel.
 

Page 40 GAO-14-515 Airline Competition

Figure 11: Average Seats per Flight by Airport Category, 2007–2012

Additionally, reduced service at certain airports has resulted in lost 

connectivity to the air transportation network for some small communities.

According to an MIT study, 23 airports in small communities lost all 

service between 2007 and 2012.66 The study found that network airline 

service at some of the smaller airports was quickly replaced by service 

from ultra-low cost airlines like Allegiant Air and Spirit Airlines. According 

to the study, for instance, after US Airways and Northwest Airlines ended 

service from Arnold Palmer Regional Airport in Latrobe, Pennsylvania, 

Spirit Airlines entered the airport to provide periodic, non-stop service 

primarily to leisure destinations in the Southeast.

 

66Wittman and Swelbar, Trends and Market Forces Shaping Small Community Air Service

in the United States. 
 

Page 41 GAO-14-515 Airline Competition

U.S. airlines are seeking to provide greater differentiation between the 

products they offer by enhancing the travel experience and establishing 

customer loyalty to a specific airline rather than viewing the product as a 

commodity. Airlines are increasingly competing on service by investing in 

technology to enhance their websites, upgrading their fleets and airport 

lounges, and providing the types of services and on-board amenities that 

consumers may value. Network airlines are marketing their ability to offer 

travelers access to more global destinations through expanded networks. 

Network and low-cost airlines are also purchasing new airplanes as 

evidenced by new aircraft orders in 2013. Higher fuel prices are driving 

the demand for newer, more fuel-efficient aircraft, in addition to U.S. 

airlines’ desire to replace older fleets. Passengers may benefit from these 

new planes because they are quieter and offer enhanced entertainment 

options and other in-flight amenities. Some airlines, for example, offer flatbed seats, premium economy seats, faster Wi-Fi, and larger overhead 

bins. For certain passengers, some airlines are introducing premium 

services such as limousine pick-up at the gate. Some airlines are also 

waiving certain ancillary fees, such as bag fees, in an attempt to increase 

loyalty to their brand. Moreover, by introducing new technology, including 

mobile applications, airlines hope to make it easier than ever to purchase 

tickets from their websites. However, according to both consumer 

advocacy organizations we spoke with, as network and low-cost airlines 

compete more on service, attempt to differentiate their brands, and take 

steps to increase consumer loyalty, an adverse effect is that consumers 

have less ability to comparison shop and airlines compete less on price.

We interviewed 26 stakeholders representing different facets of the airline 

industry—including academic and research experts, airline 

representatives, industry trade associations, industry analysts from credit 

rating agencies and financial services firms, an airport authority, 

organizations representing the travel industry, and consumer advocacy 

organizations—to help identify challenges to competition in the airline 

industry (see app. I for a complete list). Although our analysis found that 

since 2007 the structure of the market, with respect to the average 

number of effective competitors and average concentration levels, has 

not substantially changed in the highest-traffic city-pair markets, many 

stakeholders we spoke to stressed that there are competition concerns 

beyond the number of effective competitors and level of concentration. 

Stakeholders identified a number of challenges, which we categorized 

into four challenges to airline competition: (1) barriers that prevent airlines 

from entering the industry or specific markets; (2) the lack of transparency 

in airline fare and fee disclosure; (3) the effects of consolidation on 

Some Consumers May 

Benefit As Airlines Attempt 

to Offer New Services and 

Expanded Networks

Airline Stakeholders 

Identified Several 

Challenges to Airline 

Competition and 

Proposed Limited 

Federal Actions to 

Address Them
 

Page 42 GAO-14-515 Airline Competition

competition; and (4) emerging international competition concerns. Certain 

stakeholders also suggested several actions the federal government 

could take that in their view would help address these challenges—

including removing slot controls, which limit the number of takeoffs and 

landings per hour at four capacity-constrained airports; eliminating airline 

loyalty programs; and encouraging the completion of federal regulations 

that would provide consumers greater transparency in fares and fees.

A majority of the stakeholders we interviewed cited barriers to entry as a 

key challenge to competition in the domestic passenger airline industry. 

Barriers to entry are practices or conditions that impede a firm’s ability to 

enter either an industry or specific markets within the industry. As entry, 

or the threat thereof, may have a disciplining effect on incumbent firms’ 

behavior, barriers that make entry more difficult can hamper competition 

and enable incumbent firms to charge higher prices without fear that 

doing so will attract new competitors. The last major airline to enter the 

U.S. market was Virgin America in 2007. We grouped the entry barriers 

stakeholders identified into three primary categories: barriers to airport 

access, diminished cost advantages and access to capital for new 

airlines, and advantages held by network airlines.

• Airport access: The inability to obtain access and secure a foothold 

at some key airports was identified as a major entry barrier by 10 of 

the 26 stakeholders we interviewed. These stakeholders drew 

attention to slot controls that are in place at four major congested 

airports.67 We have previously found that slot controls allow airports to 

manage congestion; however, they also limit access for new entrants 

to some of the busiest airports in the country.68 According to one 

industry analyst, difficulty in obtaining landing rights at these airports 

makes it harder for new airlines to compete for the most lucrative 

business travelers. As we found in September 2012, airlines that hold 

 

67Slot controls are limits imposed by FAA through regulations or orders on the number of 

takeoffs and landings airlines may make per hour at Ronald Reagan Washington National 

Airport in Washington, D.C., and the three major airports in the New York metropolitan 

area: John F. Kennedy International, LaGuardia, and Newark Liberty International 

Airports. 

68GAO, Slot-Controlled Airports: FAA’s Rules Could be Improved to Enhance Competition 

and Use of Available Capacity, GAO-12-902 (Washington, D.C.: Sept. 13, 2012). 

Most Stakeholders Cited 

Barriers to Entry as a 

Challenge
 

Page 43 GAO-14-515 Airline Competition

slots might underutilize69 them by, for example, using smaller aircraft 

instead of giving the slots up, thereby reducing access by new-entrant 

airlines that could use the slots to offer new service or lower fares and 

also limiting passenger growth at these airports. In addition to slot 

controls, 5 stakeholders, including academic and research experts 

and travel and consumer advocacy organizations pointed to limited 

access to gates and facilities at other airports as an entry barrier. 

According to DOT, consolidation has made it increasingly difficult for 

certain airports to secure financial approvals for infrastructure projects 

that could allow greater access for new entrants (e.g., by building new 

gates). According to DOT officials, many airports are bound by 

majority-in-interest provisions, which in effect give the largest airlines 

at airports the ability to veto or delay major capital infrastructure 

projects.70

The federal government has taken steps to begin to address both slot 

and airport-access challenges. For example, the DOJ’s settlement 

approving the American-US Airways merger required the merging

airlines to divest slots and open up gates and other facilities to 

facilitate competition from low-cost airlines at seven key airports 

around the country.71 Specifically, American Airlines and US Airways 

surrendered 104 slots at Ronald Reagan Washington National Airport 

that have been divested to low-cost airlines Southwest, JetBlue, and 

Virgin America. The airlines also divested 34 slots at New York’s 

LaGuardia Airport to Southwest and Virgin America. The settlement is 

intended to mitigate any anticompetitive effects of the merger by

allowing low-cost airlines to expand into new markets and provide the 

opportunity for more competition to the remaining major network 

 

69Existing slot control rules require airlines to operate their slots at least 80 percent of the 

time, which allows airlines not to schedule some of their allocated slots. 14 C.F.R. Part 93, 

subparts K and S; 76 Fed. Reg. 18618 (Apr. 4, 2011); 76 Fed. Reg. 18616 (Apr. 4, 2011); 

76 Fed. Reg. 18620 (Apr. 4, 2011). 

70Majority-in-interest clauses are provisions in an airport’s general use agreement with an 

airline that typically give those airlines performing a majority of the operations at the 

airport veto power over airport expansion when those airlines would be responsible for 

paying the cost of that expansion. 

71Airports affected by the settlement include Washington Reagan National Airport, 

LaGuardia Airport, Boston Logan International Airport, Chicago O’Hare International 

Airport, Dallas Love Field, Los Angeles International Airport, and Miami International 

Airport. See “United States of America, et al. v. US Airways Group, Inc. and AMR 

Corporation,” No. 1:13-cv-01236 (D.D.C., Apr. 25, 2014). 
 

Page 44 GAO-14-515 Airline Competition

airlines. The Federal Aviation Administration (FAA) is also developing 

a new rulemaking to replace the current temporary orders limiting 

scheduled operations at John F. Kennedy International Airport, 

LaGuardia Airport, and Newark Liberty International Airport and 

address congestion and delay issues at each of these airports. The 

draft notice of proposed rulemaking is currently under review at the 

Office of Management and Budget.72 Additionally, DOT’s Office of the 

Secretary of Transportation and FAA attempt to advance airline 

competition at larger commercial service airports through their review 

of airport competition plans.73 Large- or medium-hub airports, at which 

one or two airlines control 50 percent or more of the passenger 

boardings, are required to submit competition plans to demonstrate 

how their leasing and financing practices will provide competitive 

access to airlines attempting to initiate service at those airports. DOT 

officials reported that the agency reviews approximately 40 airport 

competition plans or plan updates annually, and since 2011, seven 

airports became newly subject to competition plan requirements. One 

stakeholder we spoke with, however, highlighted concerns with the 

efficacy of competition plans at slot-controlled airports.

• Diminished cost advantages and access to capital for new 

entrants: Cost challenges—including limited available capital and the 

cost of jet fuel—were identified as significant obstacles for new 

airlines seeking to enter the market by eight stakeholders, including 

academic and research experts, industry analysts, and several airline 

representatives. Previously, new airlines were often able to compete 

with incumbents by exploiting certain cost advantages, such as lower 

operating costs. However, any cost advantage that a new entrant 

might have had relative to larger airlines has been muted by the price 

of fuel, which grew to approximately 30 percent of U.S. airlines’ 

operating costs in 2012. While new entrants in the market have relied 

in the past on purchasing older, cheaper aircraft to establish their 

fleet, the rising cost of fuel has made these less fuel-efficient aircraft 

cost-prohibitive. Further, Boeing and Airbus have a backlog of aircraft 

orders, which makes it more difficult for a new airline to obtain new 

aircraft. Representatives from two airlines and several industry 

 

72DOT Report on Significant Rulemakings, available at 

http://www.dot.gov/regulations/report-on-significant-rulemakings, April 2014.

7349 U.S.C. §§ 40117(k), 47106(f); FAA Program Guidance Letter 04-08 (Sept. 30, 2004).
 

Page 45 GAO-14-515 Airline Competition

analysts told us that another factor limiting entry has been the 

difficulty new airlines have faced in securing the capital needed to 

expand their fleets since the most recent recession.

• Network airline advantages: Eleven stakeholders, including 

academic and research experts, representatives from two airlines, a 

consumer advocacy organization, and two travel industry 

organizations emphasized that the advantages the three consolidated 

network airlines maintain relative to smaller airlines are significant 

obstacles that make entry into the industry and individual new markets 

challenging. Specifically, according to an industry analyst and 

representatives from one airline, new entrants are facing a mature 

market with few domestic routes that are considered underserved. 

Further, American, Delta, and United have national networks that 

provide service to most domestic markets and many international 

destinations. A new airline that does not provide the same level of 

service in terms of destinations and frequency may not be able to 

compete with these airlines. Airline loyalty programs and corporate 

discounts, according to seven stakeholders, also create entry barriers. 

Representatives from one airline and a travel industry organization 

said that the corporate account agreements that network airlines 

create with Fortune 500 companies, which provide these companies 

discounts in exchange for a percentage of their corporate travel, can 

place smaller airlines that cannot provide such discounts at a 

significant disadvantage. Several stakeholders agreed and academic 

research supports the idea that airline loyalty programs, such as 

frequent flyer programs, can incentivize consumers to concentrate

their flying with one airline to accumulate miles and rewards, even 

though other airlines’ fares may be more competitively priced.74 Six 

stakeholders, including representatives from a low-cost airline, 

academic and research experts, and an industry trade association, 

also drew attention to an incumbent network airline’s ability to respond 

to entry, or the threat thereof, in a particular market by dramatically 

increasing capacity, thereby lowering fares and hindering a new 

airline’s ability to profitably serve the route.

 

74Mara Lederman, “Are Frequent Flyer Programs a Cause of the ‘Hub Premium?’” Journal 

of Economics & Management Strategy, vol.17 (2008). 
 

Page 46 GAO-14-515 Airline Competition

Another key challenge cited by six stakeholders—including an academic 

and research expert, two consumer advocacy organizations, and three 

travel industry organizations—is the incomplete information about the 

total cost of air travel (e.g., taxes, ancillary fees, and surcharges) 

available to consumers at the time they purchase their ticket. These 

stakeholders emphasized that competition between airlines is 

undermined when consumers have limited ability to shop comparatively 

and make decisions about their air travel purchases without full fare and 

fee information. In 2011, DOT issued a final rule requiring that an airline’s 

most prominently advertised airfare must be the full cost of the ticket, with 

government taxes, mandatory fees, and optional surcharges included.75

DOT officials also told us that there has been an increase in complaints 

regarding ancillary fees since airlines first imposed fees for checked 

baggage. We previously found, for example, that information about 

ancillary fees is not fully disclosed through all ticket distribution channels 

(e.g., online travel agencies like Expedia.com and Travelocity), making it 

difficult for consumers to compare the total cost of flights offered by 

different airlines.76

We recommended in 2010 that DOT improve the disclosure of baggage 

fees and policies to passengers by requiring airlines to disclose fees 

consistently across all ticket distribution channels used by airlines.77 In 

May 2014, DOT issued a notice of proposed rulemaking to, among other 

things, make airline pricing of ancillary fees more transparent.

78 Another 

rulemaking would require more detailed reporting of ancillary fees to 

 

75Department of Transportation Office of the Secretary, Final Rule, “Enhancing Airline 

Passenger Protections,” 76 Fed. Reg. 23110 (Apr. 25, 2011). Legislation introduced 

recently in Congress would require DOT to issue a final regulation to allow airlines to 

disclose federal taxes and fees separately from the base airfare. Transparent Airfares Act 

of 2014, H.R. 4156, 113th Cong. (2014).

76GAO-10-785. 

77GAO-10-785. 

78DOT issued the Notice of Proposed Rulemaking for the third Enhancing Airline 

Passenger Protections rule in May 2014. Among other requirements, DOT proposes to 

require airlines and ticket agents to disclose at all points of sale the fees for certain basic 

ancillary services associated with the air transportation consumers are buying or 

considering buying, including first and second checked bags, one carry-on item, and 

advanced seat selection. Department of Transportation Office of the Secretary, Notice of 

Proposed Rulemaking, “Transparency of Airline Ancillary Fees and Other Consumer 

Protection Issues,” 79 Fed. Reg. 29970 (May 23, 2014).

Transparency in Airline 

Fare and Fee Disclosure 

Cited as Challenges to 

Competition
 

Page 47 GAO-14-515 Airline Competition

DOT.79 The airline industry has generally opposed this effort, arguing that 

expanded reporting is too complex to be economically justified and could 

be used to impose new taxes.

Six stakeholders we spoke with also raised concerns with the 

International Air Transport Association’s (IATA) Resolution 787.80 Subject 

to approval by DOT, Resolution 787 proposes a technical standard for the 

pricing and sale of airline tickets using Extensible Markup Language 

(XML). Airlines believe the XML template will make it easier for airlines to 

offer consumers products in a “shopping basket” approach that includes 

the base fare as well as fees for features such as checked bags, 

preferred seats, in-flight Wi-Fi, and airport lounge access. However, an 

academic and research expert, two consumer advocates, and three travel 

industry organizations we spoke to raised concerns about the extent to 

which personal data provided by consumers will determine what travel 

options an airline may offer. Recently, a coalition of approximately 400 

travel industry and consumer groups, including several of the 

stakeholders we spoke with, withdrew their objection to Resolution 787

and reached a negotiated agreement with IATA that limits Resolution 787 

to a technical standard that would, if ultimately developed, be transparent 

and voluntary for the industry. DOT tentatively approved Resolution 787 

in May 2014 and found that, subject to certain conditions, approval of 

IATA Resolution 787 would be in the public interest and directed 

interested parties to show why DOT should not approve the resolution. 

DOT’s tentative conditions of approval include adding several safeguards 

to ensure that consumers shopping for air travel could not be required to 

disclose personal information and specifying that airlines and ticket 

agents would be obligated to follow their published privacy policies on the 

sharing and storing of personal information.81

 

79Department of Transportation Office of the Secretary, Notice of Proposed Rulemaking, 

“Reporting Ancillary Airline Passenger Revenues,” 76 Fed. Reg. 41726 (July 15, 2011). 

80The International Air Transport Association (IATA) represents the global airline industry 

and is responsible for establishing standards in many areas of the airline business, 

including airline ticketing and baggage, that make it possible for passengers to travel from 

one place to another using two or more airlines. IATA also leads a number of industry 

initiatives involving safety, security, environment, and passenger rights.

81Order to Show Cause (Order 2014-5-7). Agreement among Member Carriers of the 

International Air Transport Association concerning an agreement (Resolution 787) of the 

Passenger Services Conference, Docket OST-2013-0048 (Department of Transportation, 

May 21, 2014).
 

Page 48 GAO-14-515 Airline Competition

Industry stakeholders were divided with regard to the effect increasing 

consolidation in the airline industry has had on competition, specifically in 

light of the merger between American Airlines and US Airways. Seven 

stakeholders, including several network and low-cost airlines and 

consumer advocacy organizations, maintain that the settlement allowing 

the American and US Airways merger to go forward was not in the public 

interest.82 Specifically, while the settlement provides for slot or gate 

divestitures at seven major airports around the country, several consumer 

advocacy organizations maintain that the divestitures will not adequately 

protect against higher fares and fees and reduced service to smaller 

communities that may result from the merger. Two airlines—network and 

low-cost—also criticized the DOJ for narrowly focusing on divesting slots 

at several airports to low-cost airlines, while another stakeholder criticized 

the settlement’s focus on slot divestitures without the same attention to 

gate availability. However, five other stakeholders, including two industry 

trade associations and three industry analysts, strongly supported the US 

Airways and American merger—along with consolidation in general—as a 

means to enhance the financial viability of the airlines. For example, one 

analyst told us that recent mergers are a market response to the financial 

challenges airlines experienced during the recent recession, and an 

industry trade association emphasized that the opportunity for airlines to 

combine operations has been critical to the industry’s recent success.

Although our analysis focused on domestic airlines and markets, several 

stakeholders raised concerns about potential international challenges to 

competition. Two consumer advocacy organizations and two travel 

industry organizations highlighted the growth of immunized international 

alliances, whereby an airline may market seats on partners’ flights, as a 

global development that has implications for domestic competition.83 DOT 

has exercised its statutory authority to grant certain groups of airlines 

 

82Pursuant to the Antitrust Procedures and Penalties Act (Pub. L. No. 93-528, 88 Stat. 

1706 (1974) (codified at 15 U.S.C. § 16), also known as the Tunney Act, the American 

Antitrust Institute, AirlinePassengers.org, Association for Airline Passenger Rights, 

Business Travel Coalition, Consumer Travel Alliance, and FlyersRights.org filed 

comments to object to the settlement of the case of United States v. US Airways Group 

Inc. and AMR Corp., No. 1:13-cv-01236 (CKK), claiming that it was not in the public 

interest (Washington, D.C.: Feb. 7, 2014).

83Major airlines worldwide have joined one of three major international alliances—

SkyTeam, Star Alliance, and oneworld—to extend their network to foreign countries. 

Industry Stakeholders 

Were Divided Regarding 

the Effects of Industry 

Consolidation on 

Competition

Several Stakeholders 

Pointed to International 

Alliances and StateSponsored Foreign 

Airlines as Emerging 

Competition Issues
 

Page 49 GAO-14-515 Airline Competition

within these alliances immunity from U.S. antitrust laws affecting 

international transportation, thereby permitting participants, for example,

to coordinate on prices, scheduling, and marketing. Grants of immunity 

are made by the Secretary of Transportation on a discretionary basis.84

Several stakeholders we spoke with raised concerns that the antitrust 

immunity airlines in these alliances have been granted to cooperate in 

international markets may lead to cooperative behavior in domestic 

markets. For example, on trans-Atlantic routes where airlines would 

otherwise offer competing non-stop flights, competition may be limited 

and consumers adversely affected if the airlines are partners in an 

immunized alliance. A study by the Transportation Research Board 

reported that U.S. airlines that are less capable of providing international 

service could become weaker competitors, as they may be less likely to 

emerge or survive as challengers to network airlines that are part of 

international alliances.85 According to DOT, since approving the first 

immunized alliance between Northwest and KLM in 1993, DOT’s policy 

on airline alliances recognizes that, although the industry is among the 

most inherently global of all network industries, it is still subject to 

regulations that limit how airlines can adapt to market conditions. Unlike 

many other global industries, according to DOT, the airline industry 

cannot pursue mergers among airlines based in different countries due to 

strict ownership and control laws maintained by many countries around 

the world.86 According to DOT, antitrust immunity is a method for allowing 

cooperative agreements between U.S. and foreign airlines to achieve 

public benefits that would otherwise not be possible.

Other stakeholders focused on international competition with regard to 

the ability of U.S. airlines to compete with foreign airlines. Specifically, 

 

84DOT considers a wide range of factors in evaluating whether a transaction is in the 

public interest, including the availability of a variety of air service, maximum reliance on 

market forces, the avoidance of unreasonable industry concentration, and opportunities 

for the expansion of international services. Because each alliance case presents a unique 

set of circumstances and because the industry environment changes rapidly, the public 

interest standard is applied on a case-by-case basis. 49 U.S.C. §§§ 41309(b), 41308(b) 

and 40101(a). 

85Transportation Research Board National Research Council, Entry and Competition in 

the U.S. Airline Industry: Issues and Opportunities, Special Report 255 (Washington, D.C.: 

1999). 

86The U.S. also has ownership restrictions relating to the navigation of aircraft in the 

United States. 49 U.S.C. §§ 41102 and 40102(a)(15); In the Matter of the Acquisition of 

Northwest Airlines, Inc. by Wings, DOT Order 91-1-41, Docket No. 46371 (Jan. 1991). 
 

Page 50 GAO-14-515 Airline Competition

representatives from an industry trade association and representatives 

from a network airline told us that U.S. airlines may be at a competitive 

disadvantage in relation to several airlines in China and the Middle East 

(e.g., China Airlines, Etihad Airways, and Emirates) that they assert 

receive government support. Representatives from one network airline 

told us that by losing traffic to these airlines abroad, domestic network 

service could be affected as well as the financial health of the domestic 

airline industry. Additionally, the Future of Aviation Advisory Committee 

report to the Secretary of Transportation noted that U.S. airlines are 

facing restrictive aviation agreements in growing markets in Asia and 

South America and face entry barriers—such as slot restrictions, air 

space limitations, and local ground-handling rules—that increase their 

operating costs and stifle competition.87

Stakeholders offered contrasting perspectives regarding the role of the 

federal government in addressing the competition challenges they 

identified. Actions recommended by stakeholders who supported a 

federal role in addressing competition challenges were in most cases 

directed at narrow issues within the industry, as federal action is 

inherently limited in a deregulated industry. Further, because the structure 

of the airline industry is evolving, the full competitive effects of industry 

consolidation are unknown.

Certain stakeholders we spoke with, including an industry analyst and 

airline representatives, were opposed to any federal actions to further 

enhance competition in the market. For example, according to 

representatives from one network airline, concerns about a competitive 

environment dominated by four large airlines do not mean that the federal 

government should interfere with the mechanics of the market.

Conversely, seven stakeholders were supportive of a federal role, but 

prioritized different actions to address concerns about competition. A 

majority of stakeholders did not identify any of the potential actions as the 

most critical for the federal government to take.

 

87U.S. Department of Transportation, The Future of Aviation Advisory Committee Final 

Report (Washington, D.C.: Apr. 11, 2011). 

Stakeholders Offered a 

Limited Range of Potential 

Federal Actions to Address 

Challenges, and Differed 

on Priorities
 

Page 51 GAO-14-515 Airline Competition

• Reducing barriers to entry: Several industry stakeholders drew 

attention to reducing barriers to entry. For example, one airport 

authority said that slot controls should be removed to maximize 

capacity and encourage competition at New York and Washington, 

D.C. airports. We have also recommended that FAA improve its 

administration of the slot control rules to enhance competition through 

greater transparency and airline access to slots.88 Additionally, two 

stakeholders supported either eliminating airline loyalty programs or 

taxing their benefits as a means to increase competition among 

airlines. The Internal Revenue Service announced in 2002 that it does 

not plan to pursue a tax enforcement program regarding promotional 

benefits such as frequent flyer miles. As a result, employees are 

currently able to keep mileage earned from flights that are paid for by 

their employer without being taxed for the value.89 Taxing benefits 

from airline reward programs, according to these stakeholders, would 

enhance competition by enabling airlines to compete route-to-route 

without regard to the extra benefit of frequent flyer miles.

• Increasing fare transparency: The three travel industry 

organizations and two consumer advocacy organizations we 

interviewed supported a stronger federal role in increasing 

transparency and competition within the industry by encouraging DOT 

to continue to finalize its proposed rulemaking on reporting ancillary 

revenue to help ensure that passengers are aware of the full cost of 

travel—including ancillary fees—at the time of purchasing a ticket.

• Mitigating anticompetitive effects of consolidation: To address 

any adverse effects industry consolidation has had on competition, 

two consumer advocacy and travel industry organizations argued that 

Congress should repeal a preemption provision in the Airline 

Deregulation Act of 1978, as amended. This provision prohibits states 

or their political subdivisions from enacting or enforcing any law, 

regulation, rule, or other provision having the force and effect of law 

related to the price, route, or service of an airline.90 The consumer 

 

88GAO-12-902. 

89IRS Announcement 2002-18, “Frequent Flyer Miles Attributable to Business or Official 

Travel” (2002). The 2002 Announcement provides, in part, that “IRS will not assert that 

any taxpayer has understated his federal tax liability by reason of the receipt or personal 

use of frequent flyer miles or other in-kind promotional benefits attributable to the 

taxpayer’s business or official travel.” 

90See 49 U.S.C. § 41713.
 

Page 52 GAO-14-515 Airline Competition

advocacy and travel industry organizations argued that such a repeal 

would allow states to sue airlines to enhance consumer protections. 

Since the industry was deregulated in 1978, air transportation has 

been almost exclusively under federal oversight. The Airline 

Deregulation Act’s preemption provision has been interpreted by the 

U.S. Supreme Court to preempt regulation of airline fare advertising 

under state consumer protection laws.91 The consumer advocacy and 

travel industry organizations argued that lifting this preemption 

restriction and allowing state attorneys general to sue airlines would 

increase discipline and benefit consumers. Additionally, one academic 

and research expert and a travel industry organization we spoke with 

recommended that DOJ conduct post-merger analyses to determine 

whether mergers have delivered the benefits, including efficiencies 

and cost savings, airlines have promised in advance.

• Addressing global competition challenges: Several consumer 

advocacy and travel industry organizations recommended that the 

federal government place more scrutiny on international alliances by 

conducting regular reviews to evaluate the effects of antitrust 

immunity. Two stakeholders supported a federal role in helping U.S. 

airlines compete in the global market as they assert government 

support and minimal regulatory burdens in some foreign countries 

give airlines like Etihad Airways, Emirates, and Qatar Airways from 

Persian Gulf states a competitive advantage over U.S. airlines. One 

industry trade association and representatives from one network 

airline we spoke with were supportive of policies that would enable 

U.S. airlines to more effectively compete with international airlines. 

These stakeholders advocated ensuring that U.S. Open Skies 

policy—agreements that the U.S. signs with other countries to allow 

airlines access to international markets—contain provisions that 

support high labor standards and protect U.S. aviation jobs, and reject 

any new or increased taxes or fees on the airline industry.

 

91See e.g., Morales v. Trans World Airlines, Inc., 504 U.S. 374 (1992). The Morales Court 

noted, however, that “some state actions may affect [airline rates or services] in too 

tenuous, remote, or peripheral a manner” to be preempted. Id. at 388, 112 S. Ct. at 2040

(quoting Shaw v. Delta Airlines, Inc., 463 U.S. 85, 100 n. 21, 103 S. Ct. 2890, 2901, n. 21, 

77 L. Ed. 2d 490 (1983)). 
 

Page 53 GAO-14-515 Airline Competition

We provided a draft of this report to DOJ and DOT for review and 

comment. Both DOJ and DOT provided technical comments that we 

incorporated as appropriate.

We are sending copies of this report to the Attorney General of the United 

States, the Secretary of Transportation, and the appropriate 

congressional committees. In addition, the report will be available at no 

charge on GAO’s website at http://www.gao.gov. 

If you or members of your staff have questions about this report, please 

contact me at (202) 512-2834 or flemings@gao.gov. Contact points for 

our Offices of Congressional Relations and Public Affairs may be found 

on the last page of this report. Major contributors to this report are listed 

in appendix III.

Sincerely yours,

Susan A. Fleming

Director, Physical Infrastructure Issues

Agency Comments
Appendix I: Objectives, Scope, and 

Methodology

Page 54 GAO-14-515 Airline Competition

The objectives of this report were to examine (1) how the financial health 

of the U.S. airline industry has changed since 2007; (2) changes to the 

structure of the market since 2007; (3) how consumers have been 

affected by changes in the financial health and market structure of the 

U.S. airline industry; and (4) what stakeholders believe are the key 

challenges to airline competition and actions the federal government 

could take to address these challenges. 

To examine changes to the financial health of the domestic airline 

industry since 2007, we analyzed airline financial and operational data, 

reviewed relevant studies, and interviewed industry experts. We divided 

the airline industry into network, low-cost, and regional airlines. While 

there is variation in the size and financial condition of the airlines within 

these groups, there are more similarities than differences. The eight 

network airlines have adopted hub-and-spoke network models, which can 

be more expensive to operate than point-to-point service. Low-cost 

airlines are typically smaller, and generally employ a less costly point-topoint service model. The eight low-cost airlines (AirTran Airways, 

Allegiant Air, America West Airlines,1 Frontier Airlines, JetBlue, Southwest 

Airlines, Spirit Airlines, and Virgin America) had consistently lower unit 

costs than the eight network airlines (Alaska Airlines, American Airlines, 

Continental Airlines, Delta Air Lines, Hawaiian Airlines, Northwest 

Airlines, United Airlines and US Airways). We also included the 30 

regional airlines that account for 99 percent of passengers on regional 

airlines in 2012. These airlines operate smaller aircraft and provide 

service to smaller communities. We utilized Department of Transportation 

(DOT) Form 41 financial and operational data submitted to DOT by U.S. 

passenger airlines for the years 2007 through 2012 as these were the 

most recent and complete annual data. All dollar figures in this report are 

nominal unless otherwise noted. We analyzed these data using various 

metrics for airline financial performance identified from our previous work. 

We obtained these data from Diio, a private contractor that provides 

online access to U.S. airline financial, operational, and passenger data 

with a query-based interface. To assess the reliability of these data, we 

reviewed the quality control procedures used by Diio and DOT, 

interviewed DOT officials responsible for data collection efforts, and 

subsequently determined that the data were sufficiently reliable for our 

 

1

Although America West merged with US Airways in 2005, it still reported as a separate 

entity in 2007.

Appendix I: Objectives, Scope, and 

Methodology
Appendix I: Objectives, Scope, and 

Methodology

Page 55 GAO-14-515 Airline Competition

purposes. We also reviewed government and expert data analyses, 

research, and studies, as well as our own previous studies. The expert 

research and studies, where applicable, were reviewed by a GAO 

economist or were corroborated with additional sources to determine that 

they were sufficiently reliable for our purposes. Finally, we conducted 

interviews with airline representatives, industry trade associations, 

industry analysts at credit rating agencies and financial services firms, 

and other industry stakeholders (see table 4 below). The analysts and 

experts were identified and selected based on a literature review, prior 

GAO work, and recommendations from within the industry. See below for 

a description of our method for selecting these stakeholders.

To examine how the airline industry’s market structure has changed since 

2007, we analyzed data from DOT’s Origin and Destination Survey, which 

includes fare and itinerary information on every 10th airline ticket sold; 

reviewed academic studies assessing competition; and interviewed DOT 

officials, airline representatives, and aviation industry stakeholders. The 

data sample comprises approximately 91,000 airport-pair markets for 

each calendar year 2007 through 2012. We excluded tickets with 

international, Alaskan, or Hawaiian destinations. We eliminated Alaskan 

and Hawaiian destinations because cost and competitive conditions 

involving these destinations are likely to be considerably different than 

routes within the continental U.S. and therefore it was not appropriate to 

include these types of routes in our analysis. Since only the airline issuing 

the ticket is identified, regional airline traffic is counted under the network 

parent or partner airline. To assess the reliability of these data, we 

reviewed the quality control procedures used by Diio, our data provider, 

and DOT, interviewed DOT officials responsible for data collection efforts, 

and subsequently determined that the data were sufficiently reliable for 

our purposes. To analyze changes in the number of effective competitors 

and market concentration, we performed a number of steps to aggregate 

and filter the data. First, since the ticket data contain one-way-direction 

ticket information, we combined data on one-way trips traveling in either 

direction for a given market defined by two cities (or airports). For 

example, we combined the traffic going from Lehigh Valley International 

Airport (ABE) to Abilene Regional Airport (ABI) with traffic travelling from 

ABE to ABI to obtain a total passenger count of all traffic between the two 

airports. Second, we filtered the data to include only those airport-pair 

markets with at least 520 passengers in one direction or 1,040 

passengers for round-trip traffic because markets with fewer passengers 
Appendix I: Objectives, Scope, and 

Methodology

Page 56 GAO-14-515 Airline Competition

would be too small to ensure statistical accuracy. This filter removed 6 

percent of the passengers from the full dataset.2 Next, we defined an 

effective competitor as an airline with at least 5 percent of total traffic. 

These are the same minimum passenger and market share filters that we 

have previously used to assess whether an airline has sufficient presence 

in a market to affect competition.3 Finally, we created separate marketlevel data sets based on two different market definitions: 1) airport-pair 

and 2) city-pair as defined by DOT.4 The most straight-forward definition 

of a market is the airport-pair, or travel between two airports. However, 

the largest cities often contain several commercial airports that compete 

for passengers, and are in some cases treated as a single destination. 

This analysis focused on domestic city-pair markets, which represent air 

transportation between two cities. City-pair markets are typically viewed 

as the basic, relevant market for airline travel in the U.S. 

For each version of the data, we calculated (1) the proportion of total 

passengers carried by each airline in the market; (2) the weighted and unweighted average number of effective competitors (defined as having at 

least 5 percent of total passenger traffic in the market); and (3) the 

average Herfindahl-Hirschman Index (HHI), which is a measure of the 

level of concentration in a market and provides an indication of changes 

in the level of competition. HHI is calculated by squaring the market share 

of each airline competing in the market and then summing the results. For 

example, a market consisting of four firms—two of which have market 

shares of 30 percent and two of which have market shares of 20 

percent—has an HHI of 2,600 (302 + 302 + 202 + 202 = 2,600). To analyze 

changes in the average number of effective competitors and 

concentration based on the size of the passenger markets, we divided 

 

2

While this analysis retained 94 percent of all passengers, it only retained 14 percent of 

the routes as defined by a specific combination of two endpoint airports after applying the 

passenger count filter screen. As we noted, data on routes with very few passengers are 

not robust enough to ensure statistical accuracy. Moreover, such cases may be indicative 

of errors in the data, or routes that are travelled so rarely that they are not representative 

of the industry more broadly and are thus not appropriate to include in this analysis. 

3

See GAO-13-403T, GAO-08-845, and GAO-10-778T. 

4

For comparison purposes we also created a separate market-level data-set based on 

city-pairs as defined in Jan Brueckner, Darin Lee, and Ethan Singer, “City-Pair Versus 

Airport-Pairs: A Market Definition Methodology for the Airline Industry,” Review of 

Industrial Organization, vol. 44 (2014). The results were generally consistent with what we 

found using DOT’s methodology for grouping city-pair markets. 
Appendix I: Objectives, Scope, and 

Methodology

Page 57 GAO-14-515 Airline Competition

markets into quintiles based on the total passengers across all markets. 

This means that each quintile had roughly 20 percent of the total 

passengers, but the number of markets in each quintile varied. These 

numbers also varied each year. For example, in 2012, we analyzed 

10,434 city-pair markets representing about 411 million passengers (see 

table 2). In addition, we assessed the number of markets dominated by a 

single airline and the number of non-dominated markets for each quintile.

Table 2: Market Structure Data Based on Total Passengers by Quintiles, 2012

 

Airport-Pair City-Pair (DOT)

Markets Passengers Markets Passengers

1st quintile 97 82,394,591 37 82,965,329

2nd quintile 203 81,522,539 99 81,452,273

3rd quintile 408 81,913,364 237 81,980,327

4th quintile 1,085 81,953,082 682 82,009,532

5th quintile 11,136 81,918,396 9,379 82,099,635

Total 12,929 409,701,972 10,434 410,507,096

Source: GAO analysis of DOT data.

We also divided markets into quintiles based on the total number of 

markets to gain additional understanding of changes in the smallest 

markets. This means that we assigned markets into quintiles in such a 

way that there were equal numbers of markets in each quintile, but

varying number of passengers, as shown in table 3 below.

Table 3: Market Structure Data Based on Total Markets by Quintiles, 2012

 

Airport-Pair City–Pair (DOT)

Markets Passengers Markets Passengers

1st quintile 2,585 353,357,035 2,086 367,070,725

2nd quintile 2,586 33,763,747 2,087 25,674,684

3rd quintile 2,586 12,703,246 2,087 9,955,800

4th quintile 2,587 6,333,036 2,088 4,975,358

5th quintile 2,585 3,544,908 2,086 2,830,529

Total 12,929 409,701,972 10,434 410,507,096

Source: GAO analysis of DOT data.

In addition, to analyze the data by distance, we grouped the markets into 

five distance categories: 0-250 miles; 251-500 miles; 501-750 miles; 751-

1000 miles; and 1,001 miles and over.
Appendix I: Objectives, Scope, and 

Methodology

Page 58 GAO-14-515 Airline Competition

To determine changes in the structure of the market at the airport level, 

we analyzed DOT T-100 enplanement data for 2007 through 2012 to 

examine changes in passenger traffic among the airlines at each airport. 

The T-100 database includes traffic data (passenger and cargo) and 

operational data for U.S. and foreign airlines traveling to and from the 

United States. These data represent a 100 percent census of all traffic. 

To assess the reliability of these data, we reviewed the quality control 

procedures used by DOT, interviewed DOT officials responsible for data 

collection efforts, and subsequently determined that the data were 

sufficiently reliable for our purposes. We also evaluated the airlines’ 

shares of total airport passengers and calculated an airport-level HHI.

To determine how consumers have been affected by changes to the 

airline industry, we also assessed DOT T-100 enplanement data for 2007 

through 2012 on service levels to large-, medium-, small-hub, and nonhub 

airports, reviewed academic studies and expert research, and conducted 

interviews with DOT and DOJ officials, six academic and research 

experts, representatives from five airlines, five travel and consumer 

advocacy organizations, four industry trade associations, and one airport 

authority (see table 4 below).

Finally, to identify what stakeholders believe are the key challenges to 

competition and what actions the federal government could take to 

address these challenges, we interviewed six academic and research 

experts, representatives from five airlines, five travel and consumer 

advocacy organizations, five industry analysts, four industry trade 

associations, and one airport authority. Although the focus of our report is 

the domestic airline industry, we have included international issues raised 

by some stakeholders because they viewed these issues as having 

implications for competition in the domestic airline industry. We identified 

and selected these stakeholders based on prior GAO work, a review of 

relevant academic literature, and expertise in their field. The expert 

research and academic studies, where applicable, were either reviewed 

by a GAO economist or corroborated with additional sources to determine 

that they were sufficiently reliable for our purposes. The views of the 26 

stakeholders should not be used to make generalizations about the views 

of all airline competition stakeholders, but do provide a range of 

perspectives on issues affecting the industry. In addition, we reviewed 

relevant studies and documentation from these stakeholders, and prior 

GAO and other government reports.
Appendix I: Objectives, Scope, and 

Methodology

Page 59 GAO-14-515 Airline Competition

Table 4: Airline Stakeholders GAO Interviewed

Federal agencies

Department of Justice

Department of Transportation

Academics and expert researchers

Peter Belobaba, Massachusetts Institute of Technology

Severin Borenstein, University of California, Berkeley

Jan Brueckner and Dan Luo, University of California, Irvine

Ken Button, George Mason University

Diana Moss, American Antitrust Institute

Vikrant Vaze, Dartmouth University

Airlines

Alaska Airlines

Delta Air Lines

Republic Airways

Southwest Airlines

Virgin America

Airport authorities

Port Authority of New York & New Jersey

Consumer advocacy and travel industry organizations 

American Society of Travel Agents

Business Travel Coalition

Consumers Union

Consumer Travel Alliance

Travel Technology Association

Industry analysts from credit rating agencies and financial services firms

Bank of America Merrill Lynch

Fitch Ratings

J.P. Morgan Securities

Moody’s Investor Services

Standard and Poor’s Ratings Services

Industry trade associations

Air Line Pilots Association, International

Airlines for America

Airports Council International–North America

Regional Airline Association

Source: GAO. 
Appendix I: Objectives, Scope, and 

Methodology

Page 60 GAO-14-515 Airline Competition

We conducted this performance audit from May 2013 through June 2014 

in accordance with generally accepted auditing standards. Those 

standards require that we plan and perform the audit to obtain sufficient, 

appropriate evidence to provide a reasonable basis for our findings and 

conclusions based on our audit objectives. We believe that the evidence 

obtained provides a reasonable basis for our findings and conclusions 

based on our audit objectives.
Appendix II: Results of Market Structure 

Analysis for the U.S. Passenger Airline 

Industry, 2007–2012

Page 61 GAO-14-515 Airline Competition

Table 5: Average Number of Effective Competitors by Airport-Pair Market Size

2007 2008 2009 2010 2011 2012

1st quintile (largest market size) 2.8 2.7 2.9 2.9 3 3.1

2nd quintile 2.4 2.4 2.4 2.5 2.6 2.5

3rd quintile 2.5 2.5 2.6 2.6 2.6 2.7

4th quintile 3.1 3.2 3.2 3.1 3.1 3.1

5th quintile (smallest market size) 3.2 3.2 3.2 3 3 2.8

Source: GAO analysis of DOT data.

Table 6: Average Number of Effective Competitors by City-Pair Market Size

2007 2008 2009 2010 2011 2012

1st quintile 4.4 4.5 4.5 4.3 4.5 4.3

2nd quintile 3.7 3.7 3.7 3.7 3.8 3.9

3rd quintile 3.4 3.3 3.4 3.5 3.5 3.4

4th quintile 3.5 3.6 3.6 3.5 3.5 3.5

5th quintile 3.3 3.3 3.3 3.1 3.1 3 

Source: GAO analysis of DOT data.

Table 7: Market Concentration by Airport-Pair Market Size, as Measured by the Herfindahl-Hirschman Index

2007 2008 2009 2010 2011 2012

1st quintile 4,910 4,783 4,547 4,549 4,295 4,202

2nd quintile 5,311 5,334 5,408 5,411 5,237 5,372

3rd quintile 5,831 5,825 5,816 5,654 5,722 5,693

4th quintile 5,389 5,306 5,343 5,450 5,419 5,490

5th quintile 5,049 5,082 5,023 5,173 5,259 5,375

Source: GAO analysis of DOT data.

Table 8: Market Concentration by City-Pair Market Size, as Measured by the Herfindahl-Hirschman Index

2007 2008 2009 2010 2011 2012

1st quintile 3,352 3,362 3,240 3,288 3,093 3,196

2nd quintile 3,611 3,636 3,618 3,599 3,551 3,451

3rd quintile 3,981 4,021 3,956 3,957 3,952 4,022

4th quintile 4,377 4,351 4,341 4,432 4,469 4,476

5th quintile 4,944 4,876 4,845 4,985 5,064 5,152

Source: GAO analysis of DOT data.

Appendix II: Results of Market Structure 

Analysis for the U.S. Passenger Airline 

Industry, 2007–2012
Appendix III: GAO Contact and Staff 

Acknowledgments

Page 62 GAO-14-515 Airline Competition

Susan Fleming, (202) 512-2834 or flemings@gao.gov

In addition to the contact named above, the following individuals made 

important contributions to this report: Paul Aussendorf, Assistant Director; 

Amy Abramowitz; Sara Arnett; Jon Carver; Leia Dickerson; Geoff 

Hamilton; Delwen Jones; Mitch Karpman; SaraAnn Moessbauer; Josh 

Ormond; Dae Park; and Justin Reed.

Appendix III: GAO Contact and Staff 

Acknowledgments

GAO Contact

Staff

Acknowledgments

(541108)
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