Expert Spotlight

Among economists, the airline industry is a classic setting for studying competition. It offers rich data; complex route-level dynamics; frequent entry and exit; and recurring questions about pricing, consolidation, and market structure. Dennis McWeeny has applied his knowledge of the industry on several airline competition matters. In this Q&A, Dennis discusses what makes airline data distinctive, how economists analyze competition in the industry, and why the evolution of the industry continues to pose new economic questions.

Q. What drew you to airlines as an area of study in your doctoral research?

A. I suppose there were three things that attracted me. First, I have always had a fascination with flying and the hustle and bustle of airports. As an economist, I often think about the many complex operations and transactions that make our economy run, and in many ways the modern airport can be seen as a microcosm of the broader economy. Second, I learned that there are rich data about the industry that anyone can use. Third, competition in the industry is constantly evolving, and those changes in the competitive landscape present economists with many novel and important questions to answer.

Q. You mentioned the rich data in the airline industry. Why does that exist, and what types of information are available?

A. Until the late 1970s, the airline industry was heavily regulated. During that time, the US Civil Aeronautics Board regularly collected and analyzed data to fulfill its obligation to monitor and regulate the industry. Even after deregulation, the Department of Transportation (DOT) continued to collect detailed data on individual passenger itineraries, fares and other fees, and various other aspects of airline operations. Today, anyone who is interested can download these data from the DOT’s website. The publicly available DOT data feature prominently in analyses of airline competition.

Q. What features of the airline industry make it especially interesting from a competition perspective?

A. The airline industry attracts economists because it combines several features: frequent entry and exit; strong price effects from actual or threatened entry; differentiated networks and service quality; repeated interaction among major carriers; significant merger activity; and price discrimination and dynamic pricing incentives. While each of these economic phenomena can be found in other industries, it is rare to find all of them happening at once in the same industry, which makes the airline industry somewhat unique and attractive for study.

Q. The airline industry has gone through repeated waves of consolidation, entry, exit, and business model changes. Would you have expected the industry to evolve in the way it has?

A. The COVID-19 pandemic caused massive changes in the airline industry that were difficult to foresee. The rise in remote work and videoconferencing technology significantly decreased demand for business travel, a shift that is likely permanent. On the flip side, younger generations tend to be more willing to spend money on experiences like travel than their older counterparts, which has increased demand for more premium airline perks and accommodations.

The airlines have all been adapting their strategies in response to these changes in demand in various ways. Meanwhile, the major airlines have also faced operational pressures, such as aircraft production delays at Boeing and Airbus, shortages of pilots and air traffic controllers, and spikes in jet fuel prices. These factors paint a picture of an industry undergoing a major economic transition.

Q. Have the recent shifts in the industry been associated with heightened antitrust scrutiny?

A. Yes, several high-profile antitrust matters have involved the airline industry in recent years. During the pandemic, American and JetBlue entered a “Northeast Alliance” partnership that was subsequently terminated for violating the antitrust laws. JetBlue and Frontier also entered a bidding war for Spirit; JetBlue won, but that merger was later blocked on antitrust grounds. Since then, Alaska Airlines merged with Hawaiian Airlines, and Allegiant merged with Sun Country. Journalists reported that United approached both American and Delta as potential merger partners. All of these actual or potential changes can affect competition, and each presents a distinct set of antitrust issues that economists would wrestle with.

Q. You’ve worked on several airline matters at Bates White, including the JetBlue–Spirit and Allegiant–Sun Country mergers. Did the shifts in the industry impact the economic analysis in those cases?

A. Yes, especially in the JetBlue–Spirit matter. JetBlue was interested in purchasing Spirit’s aircraft and using them to enter more routes and bring its higher-quality product to more consumers, thereby offering a more competitive alternative to the legacy airlines. Spirit had been struggling to earn a profit since the pandemic due to the shifts in travel demand and operational pressures that I described earlier, but it was also the lowest-cost option by a significant margin on many routes.

In addition to the usual concerns about potential losses of head-to-head competition that arise in the analysis of most horizontal mergers, the Department of Justice (DOJ) and its economists also emphasized how JetBlue intended to convert Spirit’s seat layout into a less dense JetBlue seat layout in each aircraft, thereby reducing ultra-low-cost seat capacity. The DOJ argued that this would disproportionately harm price-sensitive passengers who would find it more difficult to travel. The judge ultimately agreed.

Of course, Spirit has since gone bankrupt, ceased operations, and liquidated its assets. Hindsight is 20/20, but one does wonder whether more of those price-sensitive passengers would be flying today if the merger had been allowed to proceed, especially given that many of Spirit’s aircraft are no longer flying at all. This experience may also cause economists and other practitioners to re-evaluate the importance of “creative destruction” when analyzing mergers in dynamic industries like airlines.

Q. You were also retained as an expert by Aeroméxico for a matter involving air cargo. What changes when the focus shifts from passenger air travel to air cargo?

A. That matter presented several new and interesting challenges. First, because the matter involved a response to a show-cause order from the DOT, I had only two weeks to complete my analysis, which is an unusually tight turnaround. Second, because most of my prior work involved passenger traffic, I needed to do some additional background research to ensure that I understood the key facts and issues in the cargo business.

But overall, much of the knowledge I had collected through my prior academic research and consulting work paid dividends here. For example, many of the same data sources that we use to study the passenger side are also important for the analysis of cargo transportation. This made it much easier to deliver high-quality work in a short time.

Q. What changes do you expect to see in the industry in the future, and what new economic questions might arise from those changes?

A. In the coming years, I expect that the major airlines will continue to try new strategies to adapt to the changes in demand and that those changes will in turn create additional questions about competition. For example, I’ll be interested to see if the ultra-low-cost carriers will continue to compete effectively in the marketplace given the shift in consumer preferences toward more premium experiences. Though Spirit has recently gone out of business, new entrants like Avelo and Breeze appear to have gained a foothold in this space.

Likewise, further proposed mergers or alliances (especially between the largest carriers) are likely to generate significant antitrust interest, though they could also unlock material long-term benefits to consumers. These changes all point to new opportunities for economists to study this industry.

Q. What advice would you give to younger economists who want to develop consulting expertise in an industry like airlines?

A. I believe there are two key steps to building your expertise as an economist.

First, you need to get deep in the weeds to learn the industry and the data and develop a broad toolkit of analytical approaches to answer the questions at hand. Economists sometimes approach questions from an abstract or theoretical perspective; while there is certainly a role for that type of work, there is no substitute for applied studies that leverage the available data and deep knowledge of the facts to tackle the issues at stake. This often requires a degree of creativity to address situations where the ideal data may not be available.

Second, it is important to find great mentors and learn as much as you can from them. I have benefited immensely from working with several widely acclaimed competition experts. They all share two things in common: a relentless drive to get the economics right and a willingness to help others learn the craft and build their careers. Getting dependable advice and guidance from such experienced mentors can be a real confidence booster. I hope I can pass along those benefits to other economists as my career progresses.