Northwest/Continental Merger

The air transport industry is one of the most highly competitive in the world despite significant barriers to entry arising from the large capital outlays required to purchase, operate and maintain aircraft. As demand for international air travel has increased, alliances have been formed among domestic carriers as well as among international carriers. The result is that the market as a whole is undergoing a period of consolidation which is bringing new pressure to bear on government regulators, and is prompting some critics of the industry to call for increased regulation. This research examines the airline industry and the effect of mergers within the industry. Particular emphasis is placed on the recent announcement that Continental Airlines and Northwest Airlines would be merging, and the anti-trust scrutiny which has arisen as a result of that announcement.

The airline industry is capitalintensive, with the result that entry and exit into the market is difficult. Because of this, domestic carriers are publicly held corporations who use their stockholder equity as a primary source of funds. In the international market, carriers are often run by the government, or by organizations which have strong government ties and which operate as pseudo-government entities outside the realm of traditional government agencies. Even in the United States and in a "deregulated" environment, the government has a strong role in the regulations gov

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mers to fly to a hub airport (often Chicago or Dallas) and then onward to their destination. This resulted in shorter average flights, but increased total travel time for consumers as they had to fly through the hub regardless of their ultimate destination. Recent Mergers Currently, there are more than 500 alliances among various air carriers throughout the world. These alliances exist across a broad spectrum from simple sharing of frequent flier programs to code sharing (allowing one airline to book seats on another) and direct ownership, even skirting laws against foreign ownership in some cases ("Mergers" 68). In late 1998, OneWorld was formed by British Airways, American Airlines, Qantas, Canadian Airlines and Cathay Pacific. This alliance existed prior to the OneWorld brand being added (which came with the addition of Cathay Pacific, and may result in sales and marketing cooperation among the five carriers which has not been seen before. The Star Alliance, comprising Lufthansa, United Airlines and SAS, has a joint Star sales office in London where passengers can purchase tickets for any of the three airlines in the partnership; similar cross-marketing exists with Northwest and KLM. In this latter alliance, Northwest

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