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Antitrust Concerns Unlikely to Derail Proposed United-Continental Merger
Cambridge Aviation Research, May 2010, Pages: 12
This Quick Take report quantifies the effect of the proposed United-Continental merger on competition in the domestic market at the industry-, airport-, and route-level. By computing the Herfindahl-Hirschman Index (HHI) for each overlap route and market, we 'red flag' only seventeen airports, and seven routes involving them, for excessive market concentration using the Department of Justice's published guidelines. However, six of the seventeen are in California, which could provide at least a public relations speed bump in what otherwise appears to be a smooth road to approval. Recommendations are offered to airline executives at United-Continental, leaders at red-flagged airports, and executives at other airlines who seek to take advantage of this merger--or one of their own.
Just three weeks after merger talks between United and US Airways broke off, United and Continental this week announced the successful conclusion of negotiations. This $3B merger would create the largest U.S. carrier measured by domestic revenue passenger miles (RPMs), the third largest behind Southwest and Delta-Northwest by domestic passengers. This Quick Take report assesses the regulatory hurdles of this proposed merger by examining its likely competitive effects on the industry as a whole and on the airports and routes currently served by both carriers. Using T-100 data of domestic passenger enplanements in 2009, we calculate the Herfindahl-Hirschman Index to quantify increases in market concentration for each overlap airport and route. By applying the guidelines published by the Department of Justice and the Federal Trade Commission, we find only seventeen airports--and seven routes involving them--which may attract antitrust scrutiny. However, six of the seventeen are in California, which could provide at least a public relations speed bump in an otherwise smooth road to approval.
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