Evaluating the Effects of Airline Consolidation: A first assessment of the Air France-KLM merger

Tjade Stroband – Universiteit van Amsterdam (bachelor thesis)

In this paper the merger between airlines Air France and KLM Royal Dutch Airlines was analyzed in the context of the much-needed consolidation in the European airline industry.

The assessment of post-merger evidence generally seemed to be in accordance with the prior stated reasons to merge. In a struggling industry, two carriers with fairly complementary networks have managed to successfully combine operations, attract additional business and exceed anticipated synergies. This was done within the bounds set by competition authorities, leaving sufficient room for competitors to operate on routes where the combination had resulted in a dominant position.

Notwithstanding much literature opposing the idea of merging for efficiency rather than market power, no evidence hereof has been found thus far. Stock price reaction analysis did not give indications of an increase in market power. Moreover, the complementarity of their respective networks and competition-securing measures of the Commission further reduced the chance of this merger to result in a lessening of competition to the detriment of consumer welfare.

Instead, the preliminary evidence indicates that consumers are benefiting from more efficient operations alongside wider choice and lower prices. Combined with the recent sound performance of the merged entity, Air France-KLM has so far proved to be a successful first step in the consolidation of the European airline industry.

However, the developments surrounding this merger, and other mergers spawning from it, need to be subject to continuing research as more information becomes available. Moreover, research on the effect of the creation of a mega-alliance between Air France’s SkyTeam and KLM’s alliance partners Northwest and Continental is necessary, as this could potentially produce a competition-impeding situation.

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