Economic Analysis: Intense Competition Has Driven Increased Customer Choices, Historically Low Fares in the U.S Airline Industry

Economists with Compass Lexecon, one of the world’s leading economic consulting firms, today released an assessment of competition and consumer choice in today’s U.S. airline industry. 

Click here to access the recorded webinar.

An economic analysis of U.S. airline industry competition, conducted by Dr. Darin Lee and Daniel M. Kasper of Compass Lexecon and commissioned by Airlines for America, found that there is robust competition and choice for the vast majority of domestic and international air travelers. Specifically, the assessment demonstrates that substantial capacity growth, primarily driven by the growth and geographic proliferation of low-cost and other non-incumbent carriers has spurred intense competition. The result is an increased number of competitive choices across city pairs, a multitude of price options, historically low fares and the ability to choose between a variety of carriers competing with different and innovative service offerings.

The analysis utilized established criteria for assessing airline industry competition over the past 10 years, which resulted in the following core findings:

• Robust competition spurred by the continued proliferation of lower-cost carriers, as well as the expansion by all carriers into each other’s hubs, has exerted substantial downward pressure on airfares, both before and after the most recent set of airline mergers (i.e., those since 2007). 
• Following external shocks that severely impeded the economics of serving small communities, service at small airports has been increasing for the past three years. . 
• Over the past decade, the number of competitors per route has increased, and new routes have been added. 
• Improved financial health has enabled U.S. carriers to invest heavily in their products and services, create thousands of well-paying airline jobs, and substantially increase compensation levels for airline employees. 
• The U.S. airline industry’s operational performance and customer satisfaction levels are at all-time highs based on established Department of Transportation and other independent criteria.