Opportunity Cost Associated with Merger of Airlines

Topics: Delta Air Lines, Northwest Airlines, Airline Pages: 3 (830 words) Published: March 19, 2013
Opportunity Cost Associated with Merger of Airlines
ECN 202
February 15, 2013

The airline industry on Feb 14, 2013 announced the merger of American Airlines and US Airways forming the biggest airline company American (Mouawad, 2013). That leaves just three airlines, American, Delta Air Lines and United Airlines to offer domestic and international service.

Airline executives claim that mergers are good for passengers as they provide more service to more destinations. If this were true than more destinations would mean the opportunity cost for passengers in the form of time spent traveling to larger airports, would be lowered. Economists warn and I believe that the mergers and consolidation comes at a price for travelers as they will have fewer options. The economists warn that fares and fees are likely to go up (Mouawad, 2013), thus raising the opportunity cost for passengers, especially for flights between midsize cities, and those smaller cities may see reductions in service. If the smaller cities were to see reductions as the economist warn then the opportunity cost for the passengers would go up as it would take them longer to reach airports with service. This is also an example of marginal analysis as the cost of the airlines doing a little bit less in the way of service could result in fewer travelers.

''It's much easier to have tacit collusion with just three airlines'' said George Hoffer (Mouawad, 2013), a transportation economist at the University of Richmond. He went on to say “that helps explain why fees have become so uniform within the industry in recent years”. He said all airlines are now charging fees beyond ticket prices for things like checking bags, rebooking reservations or even picking seats or boarding early, thus raising the opportunity cost once again. The extra fees are a growing share of the airline’s revenue and are a large reason for the industry’s renewed profitability. The extra baggage fees would...

References: Air Fare Price Change Data. (2012). Retrieved Feburary 15, 2013, from PlaneTickets Web site: http://www.planetickets.com/airfare.html
AMADEUS. (2013). Retrieved Febrary 15, 2013, from Travel Industry Wire Web site: http://www.travelindustrywire.com/article69062Airline_Ancillary_Revenue_Projected_to_Reach_______Billion_Worldwide_in_____.html
Mouawad, J. (2013, Feburary 15). The New York Times.
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