Why Airline Mergers Don't Work

Victor J. Cook Jr.

Tulane University - A.B. Freeman School of Business

June 20, 2008

Over the years since airline deregulation five of the remaining U.S. legacy carriers lost money on mergers that cost them a total of $29.6 billion. The combined market cap of these carriers at the end of 2007 was $15.5 billion. In other words, their return on merger investments was -48%. Why? Two very different answers emerge from the study of this record. The first one is purely subjective: Airlines are such a sexy business investors can't resist it. The second one is more objective: The bigger a legacy carrier gets the more it's exposed to the downward pricing pressure exerted by low cost carriers.

Number of Pages in PDF File: 11

Keywords: Airlines, Mergers, Elasticity, Market Share, Earnings, Market Cap

JEL Classification: A23, B4, D2, D4, G1, G3, L1, L2, L93, M1, M2, M3

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Date posted: June 21, 2008  

Suggested Citation

Cook, Victor J., Why Airline Mergers Don't Work (June 20, 2008). Available at SSRN: https://ssrn.com/abstract=1148782 or http://dx.doi.org/10.2139/ssrn.1148782

Contact Information

Victor J. Cook Jr. (Contact Author)
Tulane University - A.B. Freeman School of Business ( email )
7 McAlister Drive
New Orleans, LA 70118
United States
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