Mergers and service quality in the airline industry: A silver lining for air travelers?

• Mergers are associated with decreased service quality.
• Mergers affect service quality in two ways, a direct effect, and an indirect effect via market concentration.
• Late flights, mishandled bags, involuntary boarding denials, and flight cancellations all increase during the immediate quarters following mergers.
• There is a silver lining for air travelers: services may improve and be better than the pre-merger levels after the aforementioned deterioration periods.

We examine the relationship between mergers in the US domestic market and service quality, as measured through late flights, mishandled bags, involuntary boarding denials and flight cancellations. We find that in the immediate years following a merger, service quality generally deteriorates, and that the drop in service is due simultaneously to the merger and the increased concentration of the market. Thus, recent mergers in the US, including Delta and Northwest, United and Continental, Southwest and AirTran, have likely resulted in increased market concentration and decreased service levels. From a public policy perspective, our results point to the importance of regulators monitoring airline actions, such as mergers and acquisitions, that serve to increase the concentration of markets, and may also result in decreased service quality.