chapter  7
36 Pages

Mergers and alliances

Before their merger Northwest focused on long-and medium-haul routes while Republic offered mainly short-and medium-haul services. In 1985 they had a combined share of 8 per cent of the total US domestic market. The carriers argued that a merger would produce efficiency gains, on the ground that their fleets and networks were complementary. However, many of the routes served were duopolies and both airlines used the airport at Minneapolis/St Paul as their main hub. Because of this the DoJ recommended that the merger be rejected, but the DoT, convinced of the efficiency advantages and of the underlying contestability of the markets, approved it. By 1993 the merged airline had built up a market share of 81 per cent at Minneapolis where Northwest’s market share had been only 32 per cent in 1978 (Table 5.12). A similar criticism was leveled at the TWAOzark merger, which led to TWA dominating the St Louis hub (Hurdle, Johnson, Joskow, Werden, and Williams, 1989). Not long after the merger TWA increased fares on formerly competitive routes emanating from St Louis by between 13 and 18 per cent.