This study examines the price-concentration relationship in the U.S. airline industry. Based on Singh and Zhus (2008) study, an economic model is applied to the Kansas airline market. The study empirically measures the airfare or price effect of the key determinant, carrier concentration, after controlling for other variables such as trip distance from Kansas to destination airports, the presence of an airport hub, nearby airports, and local area characteristics including per capita income and population. The main hypothesis is that the fewer the airline companies serving an airport (i.e., the higher the market concentration), the higher the average airfare, all else equal. The Kansas sampleis a combination of cross-sectional data (travel data for seven Kansas airports) and time-series (2000, 2005, 2010, and 2015). Airline travel data are gathered from the Bureau of Transportation and Federal Aviation Administration while local area economic statistics are taken from the Bureau of Economic Analysis. Of the Kansas airports, Wichita is the only hub and the rest are smaller airports. The results of applying ordinary least squares regression on the panel data set indicate that airline concentration has a negative and significant impact on average airfares, confirming the hypothesis. The existence of an airport hub and the average travel distance are directly related to airline fares. Moreover, there are significant time fixed effects in that airfares have consistently risen relative to 2000 prices. Although the findings show that income and population have the expected causal relationship with airfares, the estimated coefficients are statistically insignificant.
Ooi, Zheng Yao, "The Impact of Airline Concentration on Smaller Communities and Airports" (2017). Paper Presentations. 24.