For an introduction to this topic, click on the graphic below to see a quick overview of airline changes over the last 20 years. (Cambridge Aviation Research,

‍While it is impossible to predict how the airline industry will appear in the year 2030, to gain understanding, it is useful to identify forces behind airline mergers and the current trend in the United States. For a more in-depth discussion of international alliances, see the Global Wiki.

The airline industry is well described by Michael Porter’s Five Forces model (2008):
  • Established rivals fiercely compete for price;
  • Customers are very fickle at treat airline travel as a commodity, search only for the best deal;
  • Suppliers of travel and aircraft are heavily unionized and bargain away most of the profit;
  • New players continue to enter the “glamorous” industry; and
  • Substitutes for travel exist in abundance, train or car;

In an attempt to become more profitable, airlines view mergers as a strategy to improve the forces in the industry. Mergers can drive increased revenue and lower unit costs. The increase in revenue is a result of less competitors and greater load factors on aircraft. Less competition can also lead to opportunities for increased fares. Mergers also drive lower unit costs as greater passenger density or aircraft using existing infrastructure increases asset efficiency.
Recently, the Chief Executive Officer of Alaska Airlines eluded that Alaska Airlines has no desire for an airline merger (Kaminski, 2012). In this environment where Alaska Airlines provides transportation with a local touch for customers along the west coast of the United States the business model maybe sound. However, the industry continues to consolidate leaving carriers such as Alaska Airlines as viable targets. Delta and Northwest merged in 2008, United and Continental Airlines merged in 2010 along with Southwest and AirTran. As the number of airlines continues to decrease, the factor of anti-trust laws will eventually prevent further merging.
As ‍discussed‍ in the Global Wiki, the forces affecting airline consolidation can be summarized as (Fan, Vigeant-Langlois, Geissler, Bosler, Wilmking , 2001):
  • Increased globalization;
  • Increased intra-regional interaction;
  • Economic incentives;
  • Pace of liberalization; and
  • Anti-trust.

As globalization continues there is a continued need for international and intercontinental travel (Fan et al., 2001). Strategic alliances where passengers can travel seamlessly between carries will be more valuable to passengers than travel with unaffiliated airlines. This level of service is very useful for frequent business travelers.

A large force in driving consolidation is the economic benefits. Economic benefits can be realized through increased (density) revenue while enjoying lower unit costs (Fan et al., 2001). Mergers and acquisitions are a much faster method of creating a larger network than organic growth (Fan et al., 2001).

As the liberalization of the global airline industry continues so will the pace of consolidation (Fan et al., 2001). Two restrictions still remain that prohibit completely liberalizing the international air transportation market: first, the granting of air traffic rights to specific carriers is usually based on carrier country of ownership and secondly, foreign ownership limitations for international airlines. (Fan et al., 2001).

Anti-trust concerns remain an opposing force to airline consolidation. As consolidation continues and the benefits realized increase a desire for further mergers, regulation may veto all further strategic alliances (Fan et al., 2001).

Airline consolidation over the next 20 years will most likely only be attempted if a business case exists. Some airlines such as Alaska Airlines may remain in a niche market and have no desire to merge. However as many factors influence these types of decisions, it is impossible to predict where and how these alliances/mergers will develop. In the year 2030, the U.S. airline industry may consist of 3 or 4 larger companies with strong international alliances and a number of medium size airlines operating in niche markets.

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