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Transportation Research Part E 48 (2012) 853–862

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Transportation Research Part E journal homepage: www.elsevier.com/locate/tre

Mergers and acquisitions in aviation – Management and economic perspectives on the size of airlines
Rico Merkert a,⇑, Peter S. Morrell b a b

Institute of Transport and Logistics Studies, The University of Sydney, NSW 2006 Sydney, Australia
Department of Air Transport, Cranfield University, Cranfield, MK43 0AL Bedfordshire, UK

a r t i c l e

i n f o

Article history:
Received 31 July 2011
Received in revised form 14 December 2011
Accepted 7 February 2012

Keywords:
Mergers and acquisitions
Finance
Productivity
Size of firms
Data envelopment analysis

a b s t r a c t
This paper reviews literature and management perspectives on airline mergers and acquisitions. We find that M&A/consolidation is seen as a ‘‘game-changer’’ and mandatory to survive in aviation markets. We, therefore, apply DEA models to 66 airlines to evaluate whether big is indeed always beautiful. Our results suggest that the optimal airline size is between 34 and 52 bn available seat kilometre capacity and that airlines with more than
200 bn ASK are definitely too large to operate efficiently. This also applies when revenues are included in the DEA models, which is central as yield management and ancillary revenues are increasingly important.
Ó 2012 Elsevier Ltd. All rights reserved.

1. Introduction
A key outcome of the deregulation of the US and European aviation markets is that it has become possible for airline companies to grow much faster than just generically by merging acquiring each other, often even across borders. In general, consolidation in the form of mergers and acquisitions (M&A) is often seen as a very effective way of surviving in the competitive environments of many aviation markets. For example, Willie Walsh, CEO of the recently formed International Airlines Group
(IAG = BA/Iberia), sees M&A as a

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