A retrospective analysis of the effects of airline mergers on China Eastern's 'lifeline' routes: a difference-in-differences approach

Abstract

We have seen a wave of mega airline mergers in the past few years including Air France/KLM, Delta/Northwest (NW) and United/Continental. However, literature examining the post-merger effects remains sparse. Using a difference-in-differences (DD) approach, this study examines the airfares on China Eastern's three 'lifeline' routes, Shanghai-Beijing, Shanghai-Guangzhou and Shanghai-Shenzhen, after the 2002 airline mergers that eliminated six state-owned airlines and resulted in three large airline groups. Passengers on these important routes seem to have not been adversely impacted, and even in 2007, the airfares were not significantly higher than that of the 2002 level despite the rise in fuel price, which may provide some evidence to support the 2009 merger between China Eastern and Shanghai Airlines and justify a lenient anti-trust treatment of mergers in China's airline industry. Retrospectively examining the actual effects of consummated mergers in China including this research has significant policy implications for the new Anti-Monopoly Law enforcement agencies that have little experience and knowledge in dealing with airline mergers and alliances at this stage.