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Why Airline Mergers Don't Work

11 Pages Posted: 21 Jun 2008  

Date Written: 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.

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

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

Suggested Citation

Cook, Victor J., Why Airline Mergers Don't Work (June 20, 2008). Available at SSRN: or

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