Business Finance - Operations Management Week One Assignment 1.

Case Study 7-2: Airline Consolidations

Nimene Kofa

National University

SCM640 Distribution Management

Richard Hopkins

August 24, 2026

Introduction and Background

The Airline Deregulation Act of 1978 changed the U.S. airline industry by allowing airlines to make more of their own decisions about fares, routes, and market entry. The purpose was to increase competition, but over time the industry became more concentrated through bankruptcies, acquisitions, and mergers. Delta merged with Northwest, United merged with Continental, Southwest acquired AirTran, and American merged with US Airways. Today, American, Delta, Southwest, and United are the major carriers that dominate the U.S. passenger airline market.

From my perspective, consolidation makes sense when the airline industry is viewed as a transportation network. Airlines have to manage expensive aircraft, maintenance requirements, fuel, employees, airport facilities, technology, and large route networks. Many of these costs continue even when an aircraft is not full. The course textbook explains that airlines may have excess capacity on a route and may lower fares to fill empty seats. It also explains that financially weaker carriers with high operating costs, debt costs, or fixed costs were more likely to leave the market after fare competition intensified (Novack et al., 2019, p. 234). This helps explain why scale, capacity management, and cost control became so important after deregulation.

However, I do not believe that bigger automatically means better for the customer. Consolidation can help airlines reduce duplicated costs, improve aircraft utilization, and expand their networks, but too much consolidation can also reduce competition. My position is that the industry needs a balance between allowing airlines to gain legitimate operating efficiencies and ensuring that passengers and smaller carriers still have meaningful choices.

1. Comparison of the Four Mega-Carriers

The four major airlines operate at enormous scale, but their fleet strategies, networks, capacity, and financial results are different. The comparison below uses primarily 2025 full-year company filings. Because airlines do not always define passengers, aircraft, and departures in exactly the same way, the figures are best used to compare relative scale rather than as perfectly standardized measures.

Analysis of the Comparison

Looking at the four airlines together, what stands out to me is that fleet size alone does not determine which airline performs best. American operates one of the largest fleets and networks, but Delta generated stronger operating income in 2025. That tells me that an airline manager cannot focus only on adding aircraft or increasing capacity. The company also has to make sure that the capacity placed into the market generates enough revenue to cover the cost of operating the network (American Airlines Group Inc., 2026; Delta Air Lines, Inc., 2026).

Southwest provides a different competitive model. Its fleet consists of Boeing 737-family aircraft, which can reduce complexity in spare-parts inventory, mechanic and pilot training, maintenance planning, and aircraft substitution (Southwest Airlines Co., 2026). The textbook also identifies Southwest as an example of a no-frills carrier and explains that fewer employees and a simpler service model can contribute to lower operating costs and lower fares (Novack et al., 2019, p. 234). To me, Southwest shows that an airline can compete not only through network size, but also through standardization and cost discipline.

United demonstrates another side of the strategy. Its approximately 330.3 billion available seat miles in 2025 gave it the largest capacity footprint among the four carriers in this comparison (United Airlines Holdings, Inc., 2026). However, that capacity is valuable only when demand supports it. The textbook notes that airlines may have too many flights and seat miles on a route and may selectively lower fares to fill empty seats (Novack et al., 2019, p. 234). For me, this shows why forecasting, capacity planning, aircraft utilization, and route management are as important as simply having a large fleet.

2. Why the Number of Airlines Decreased After Deregulation

Although deregulation made it legally easier for airlines to enter markets, it did not make it financially or operationally easy. In my view, this distinction is important. The textbook explains that deregulation increased competition as new carriers entered selected routes, but the additional capacity also contributed to lower fares and fare wars. Financially weaker carriers then exited the market, while remaining carriers benefited from economies of density (Novack et al., 2019, p. 234). A company may have permission to compete, but that does not mean it has the resources needed to compete successfully.

Starting an airline requires aircraft, maintenance support, pilots, flight attendants, fuel, insurance, technology, baggage operations, airport facilities, and a reliable supply chain for replacement parts. A new airline has to pay many of these costs before it develops enough passenger volume to become profitable. At the same time, it competes against airlines that already have established hubs, maintenance networks, suppliers, employees, loyalty programs, and customer relationships.

Airport access creates another barrier. The U.S. Government Accountability Office (2001) identified gates, ticket counters, baggage facilities, and takeoff and landing slots as barriers that can restrict new airlines from entering dominated markets. The course textbook reinforces this point by explaining that limited slots at major hub airports can prevent carriers from expanding and that dominant carriers may control those slots, making it difficult for new airlines to offer service at the hub (Novack et al., 2019, p. 236). This matters because a new carrier cannot simply decide to compete at a major airport if the gates and slots needed to operate an effective schedule are unavailable.

I also think network size creates a major competitive advantage. The textbook describes how hub-and-spoke systems feed passengers from lower-density routes into hubs and then connect them to larger markets; it specifically discusses United's use of Chicago and Delta's use of Atlanta as hub examples (Novack et al., 2019, p. 239). A smaller entrant may offer a lower price on one route, but it cannot immediately reproduce that level of connectivity. Frequent-flyer programs also strengthen customer loyalty and are another form of service competition (Novack et al., 2019, p. 234).

Therefore, I do not see the decline in the number of major airlines as evidence that deregulation completely failed. Instead, deregulation increased competitive pressure, and some airlines were better positioned to survive than others. Over time, bankruptcies and mergers allowed surviving carriers to become larger. The result is an industry in which entering the market may be legally possible, but competing at the scale of the four major carriers is extremely difficult.

3. Should the Federal Government Reimpose Economic Regulation?

I would not recommend returning to the full economic regulation that existed before 1978. Airlines need flexibility to respond to changes in fuel prices, labor costs, aircraft availability, seasonal travel, and passenger demand. The textbook shows that airlines compete through fares, flight frequency, timing, and service features, and that deregulation increased competition on selected routes (Novack et al., 2019, p. 234). From a transportation management standpoint, requiring the government to approve routine fare or route decisions could make it harder for airlines to adjust capacity and service when market conditions change.

At the same time, I do not believe a highly concentrated market should be left completely unchecked. Competition becomes especially important at airports where one carrier controls a large share of gates, slots, or flights. The textbook specifically notes that slots at hub airports can be controlled by the dominant carrier, making entry difficult for new carriers (Novack et al., 2019, p. 236). In those situations, passengers may technically have several national airlines to choose from but still have limited practical alternatives in their local market.

My recommendation is targeted regulation rather than a return to government control of fares and routes. Federal agencies should continue strong antitrust review of mergers and anticompetitive conduct, while airport authorities and regulators should protect reasonable access to gates and slots for new and smaller carriers. Consumer protections and clear disclosure of fares and fees should also remain priorities.

In my opinion, government should regulate the conditions necessary for fair competition rather than trying to operate the airline business itself. This approach gives airline managers room to make operating decisions while still protecting passengers and keeping markets open to competition.

4. Why Did the Justice Department Allow Consolidation?

The Justice Department's treatment of airline mergers shows that consolidation was not simply accepted as harmless. The American Airlines-US Airways merger is a good example. DOJ initially sued to block the transaction because it believed the merger would substantially reduce competition. The case was later settled after the airlines agreed to divest slots and gates at important airports so that other carriers could expand (U.S. Department of Justice, 2013).

This distinction is important to my analysis. Regulators were balancing two competing concerns. On one side, combining airline networks can reduce duplicated facilities and create opportunities for better aircraft utilization, maintenance coordination, purchasing, scheduling, and network connectivity. On the other side, consolidation can make an already concentrated market more difficult for smaller competitors to enter.

The American-US Airways settlement required the carriers to give up valuable airport assets, including slots at Reagan National and LaGuardia and gates or facilities at several other major airports (U.S. Department of Justice, 2013). To me, this demonstrates the tradeoff regulators face. Blocking every merger could prevent airlines from achieving legitimate network and operating efficiencies, but approving mergers without conditions could make concentrated airports even harder for competitors to enter.

For future mergers, I believe regulators should require strong evidence that claimed efficiencies will benefit the transportation network and consumers, not just the companies combining. As concentration increases, the competitive cost of another major merger becomes more significant.

Conclusion

My main takeaway from this case is that airline consolidation cannot be judged only by whether airlines become larger or more profitable. From a transportation management perspective, consolidation can improve network coverage, aircraft utilization, purchasing leverage, maintenance planning, and overall efficiency. At the same time, those benefits have to be weighed against what happens when new airlines cannot obtain gates, slots, or enough network access to compete.

The operating results of American, Delta, Southwest, and United show how difficult it would be for a new entrant to immediately match their fleets, networks, passenger volumes, and financial resources. Their scale creates efficiencies, but it also reinforces some of the barriers facing smaller competitors.

For that reason, I would not recommend returning to the regulatory system that existed before 1978. I would keep the deregulated system while aggressively protecting airport access, enforcing antitrust laws, and carefully reviewing future mergers. In my view, that provides the best balance between allowing airlines to make efficient operating decisions and giving new and smaller carriers a realistic opportunity to compete.

References

American Airlines Group Inc. (2026). 2025 annual report [Form 10-K]. U.S. Securities and Exchange Commission. https://www.sec.gov/Archives/edgar/data/6201/000000620126000014/aal-20251231.htm

Delta Air Lines, Inc. (2026). 2025 annual report [Form 10-K]. U.S. Securities and Exchange Commission. https://www.sec.gov/Archives/edgar/data/27904/000002790426000013/dal-20251231.htm

Novack, R. A., Gibson, B. J., Suzuki, Y., & Coyle, J. J. (2019). Transportation: A global supply chain perspective (9th ed.). Cengage Learning.

Southwest Airlines Co. (2026). 2025 annual report [Form 10-K]. U.S. Securities and Exchange Commission. https://www.sec.gov/Archives/edgar/data/92380/000009238026000004/luv-20251231.htm

United Airlines Holdings, Inc. (2026). 2025 annual report [Form 10-K]. U.S. Securities and Exchange Commission. https://www.sec.gov/Archives/edgar/data/100517/000010051726000023/ual-20251231.htm

U.S. Department of Justice. (2013, November 12). Justice Department requires US Airways and American Airlines to divest facilities at seven key airports to enhance system-wide competition and settle merger challenge [Press release]. https://www.justice.gov/archives/opa/pr/justice-department-requires-us-airways-and-american-airlines-divest-facilities-seven-key

U.S. Government Accountability Office. (2001). Aviation competition: Challenges in enhancing competition in dominated markets (GAO-01-518T). https://www.gao.gov/assets/gao-01-518t.pdf

WEEK ONE ASSIGNMENT ONE PROFESSOR’S FEEDBACK

Overall Feedback

I would like you to write in your own voice. this submission has indications that a copy/paste from an LLM was used without citations which is a violation of NU Policy. Please be very careful with all of your assignments/DBs moving forward, ok? I'm less worried about presentation/grammar than I am the content and how well you understand the concepts. 

Yes, this text shows heavy signs of being AI-generated and subsequently run through an automated paraphrasing tool (often called a "text spinner" or synonym-swapper like QuillBot).

While it lacks the clean, polished flow of standard ChatGPT or Claude text, it displays classic hallmarks of "spun AI text"—where an initial AI draft or student draft is mechanically altered to replace words with synonyms to bypass AI detectors.

The Smoking Guns: "Thesaurus-Sapping" & Strange Phrasing

When text-spinning software replaces words, it often chooses synonyms that completely break standard business terminology or sound highly unnatural to a native speaker:

· "These judgments demonstrate..."—In a business context, a human or standard AI would write  "These decisions" or  "These strategies." Replaced with "judgments," it sounds highly unnatural.

· "Mediocre strategic diversification"—The author writes that Alternative 3 offers "mediocre" diversification.  Mediocre means second-rate, ordinary, or poor. A human or clean AI trying to express a middle ground would write  "moderate" or  "limited" diversification. A text spinner likely swapped "moderate" for "mediocre."

· "Rivals that have more formidable plant-based identities"—This is a classic spun phrase for  "competitors with stronger brand recognition."

· "Clearfield ought to persist with..."—A clumsy phrasing choice where a standard writer would use  "should proceed with" or  "should adopt."

Clumsy "Forced" Citations (The AI Constraint Proof)

The most definitive proof of AI generation lies in how the academic sources are integrated. When an AI is prompted with a constraint like  "Write this analysis and you must incorporate these specific articles," it forcefully stitches them in regardless of whether they logically fit.

Look at how the text uses the  Rojas-Rivas (2024) study:

· The Reality of the Study: The actual 2024 study focuses purely on psychometric profiles and consumer behavior toward  local, traditional, artisanal Mexican cheeses in Central Mexico.

· How the Text Uses It: In Alternative 2, the text uses this study to justify why an American industrial cheese company (Clearfield) should export its corporate products to Mexico and Central America.

A human student doing genuine research would quickly realize that a study on artisanal Mexican cheese preferences doesn't apply to an American industrial dairy export strategy. An AI, however, will blindly insert the citation statement ( "quality, freshness, sensory properties, and artisanal associations") just to check off the prompt's requirement box.

The Verdict

This text is highly synthetic. It is likely an  AI-generated response that was run through a synonym-exchanging paraphrasing tool to mask its robotic origins, resulting in an unnatural mix of advanced vocabulary ("augurs well") and completely incorrect word substitutions ("mediocre diversification," "judgments").

If you are grading or reviewing this work, it should be flagged for academic dishonest

Case Study 7-2: Airline Consolidations

Nimene Kofa

National University

SCM640 Distribution Management

Richard Hopkins

August 24, 2026

Introduction and Background

The Airline Deregulation Act of 1978 changed the U.S. airline industry by allowing airlines to make more of their own decisions about fares, routes, and market entry. The purpose was to increase competition, but over time the industry became more concentrated through bankruptcies, acquisitions, and mergers. Delta merged with Northwest, United merged with Continental, Southwest acquired AirTran, and American merged with US Airways. Today, American, Delta, Southwest, and United are the major carriers that dominate the U.S. passenger airline market.

From my perspective, consolidation makes sense when the airline industry is viewed as a transportation network. Airlines have to manage expensive aircraft, maintenance requirements, fuel, employees, airport facilities, technology, and large route networks. Many of these costs continue even when an aircraft is not full. The course textbook explains that airlines may have excess capacity on a route and may lower fares to fill empty seats. It also explains that financially weaker carriers with high operating costs, debt costs, or fixed costs were more likely to leave the market after fare competition intensified (Novack et al., 2019, p. 234). This helps explain why scale, capacity management, and cost control became so important after deregulation.

However, I do not believe that bigger automatically means better for the customer. Consolidation can help airlines reduce duplicated costs, improve aircraft utilization, and expand their networks, but too much consolidation can also reduce competition. My position is that the industry needs a balance between allowing airlines to gain legitimate operating efficiencies and ensuring that passengers and smaller carriers still have meaningful choices.

1. Comparison of the Four Mega-Carriers

The four major airlines operate at enormous scale, but their fleet strategies, networks, capacity, and financial results are different. The comparison below uses primarily 2025 full-year company filings. Because airlines do not always define passengers, aircraft, and departures in exactly the same way, the figures are best used to compare relative scale rather than as perfectly standardized measures.

Analysis of the Comparison

Looking at the four airlines together, what stands out to me is that fleet size alone does not determine which airline performs best. American operates one of the largest fleets and networks, but Delta generated stronger operating income in 2025. That tells me that an airline manager cannot focus only on adding aircraft or increasing capacity. The company also has to make sure that the capacity placed into the market generates enough revenue to cover the cost of operating the network (American Airlines Group Inc., 2026; Delta Air Lines, Inc., 2026).

Southwest provides a different competitive model. Its fleet consists of Boeing 737-family aircraft, which can reduce complexity in spare-parts inventory, mechanic and pilot training, maintenance planning, and aircraft substitution (Southwest Airlines Co., 2026). The textbook also identifies Southwest as an example of a no-frills carrier and explains that fewer employees and a simpler service model can contribute to lower operating costs and lower fares (Novack et al., 2019, p. 234). To me, Southwest shows that an airline can compete not only through network size, but also through standardization and cost discipline.

United demonstrates another side of the strategy. Its approximately 330.3 billion available seat miles in 2025 gave it the largest capacity footprint among the four carriers in this comparison (United Airlines Holdings, Inc., 2026). However, that capacity is valuable only when demand supports it. The textbook notes that airlines may have too many flights and seat miles on a route and may selectively lower fares to fill empty seats (Novack et al., 2019, p. 234). For me, this shows why forecasting, capacity planning, aircraft utilization, and route management are as important as simply having a large fleet.

2. Why the Number of Airlines Decreased After Deregulation

Although deregulation made it legally easier for airlines to enter markets, it did not make it financially or operationally easy. In my view, this distinction is important. The textbook explains that deregulation increased competition as new carriers entered selected routes, but the additional capacity also contributed to lower fares and fare wars. Financially weaker carriers then exited the market, while remaining carriers benefited from economies of density (Novack et al., 2019, p. 234). A company may have permission to compete, but that does not mean it has the resources needed to compete successfully.

Starting an airline requires aircraft, maintenance support, pilots, flight attendants, fuel, insurance, technology, baggage operations, airport facilities, and a reliable supply chain for replacement parts. A new airline has to pay many of these costs before it develops enough passenger volume to become profitable. At the same time, it competes against airlines that already have established hubs, maintenance networks, suppliers, employees, loyalty programs, and customer relationships.

Airport access creates another barrier. The U.S. Government Accountability Office (2001) identified gates, ticket counters, baggage facilities, and takeoff and landing slots as barriers that can restrict new airlines from entering dominated markets. The course textbook reinforces this point by explaining that limited slots at major hub airports can prevent carriers from expanding and that dominant carriers may control those slots, making it difficult for new airlines to offer service at the hub (Novack et al., 2019, p. 236). This matters because a new carrier cannot simply decide to compete at a major airport if the gates and slots needed to operate an effective schedule are unavailable.

I also think network size creates a major competitive advantage. The textbook describes how hub-and-spoke systems feed passengers from lower-density routes into hubs and then connect them to larger markets; it specifically discusses United's use of Chicago and Delta's use of Atlanta as hub examples (Novack et al., 2019, p. 239). A smaller entrant may offer a lower price on one route, but it cannot immediately reproduce that level of connectivity. Frequent-flyer programs also strengthen customer loyalty and are another form of service competition (Novack et al., 2019, p. 234).

Therefore, I do not see the decline in the number of major airlines as evidence that deregulation completely failed. Instead, deregulation increased competitive pressure, and some airlines were better positioned to survive than others. Over time, bankruptcies and mergers allowed surviving carriers to become larger. The result is an industry in which entering the market may be legally possible, but competing at the scale of the four major carriers is extremely difficult.

3. Should the Federal Government Reimpose Economic Regulation?

I would not recommend returning to the full economic regulation that existed before 1978. Airlines need flexibility to respond to changes in fuel prices, labor costs, aircraft availability, seasonal travel, and passenger demand. The textbook shows that airlines compete through fares, flight frequency, timing, and service features, and that deregulation increased competition on selected routes (Novack et al., 2019, p. 234). From a transportation management standpoint, requiring the government to approve routine fare or route decisions could make it harder for airlines to adjust capacity and service when market conditions change.

At the same time, I do not believe a highly concentrated market should be left completely unchecked. Competition becomes especially important at airports where one carrier controls a large share of gates, slots, or flights. The textbook specifically notes that slots at hub airports can be controlled by the dominant carrier, making entry difficult for new carriers (Novack et al., 2019, p. 236). In those situations, passengers may technically have several national airlines to choose from but still have limited practical alternatives in their local market.

My recommendation is targeted regulation rather than a return to government control of fares and routes. Federal agencies should continue strong antitrust review of mergers and anticompetitive conduct, while airport authorities and regulators should protect reasonable access to gates and slots for new and smaller carriers. Consumer protections and clear disclosure of fares and fees should also remain priorities.

In my opinion, government should regulate the conditions necessary for fair competition rather than trying to operate the airline business itself. This approach gives airline managers room to make operating decisions while still protecting passengers and keeping markets open to competition.

4. Why Did the Justice Department Allow Consolidation?

The Justice Department's treatment of airline mergers shows that consolidation was not simply accepted as harmless. The American Airlines-US Airways merger is a good example. DOJ initially sued to block the transaction because it believed the merger would substantially reduce competition. The case was later settled after the airlines agreed to divest slots and gates at important airports so that other carriers could expand (U.S. Department of Justice, 2013).

This distinction is important to my analysis. Regulators were balancing two competing concerns. On one side, combining airline networks can reduce duplicated facilities and create opportunities for better aircraft utilization, maintenance coordination, purchasing, scheduling, and network connectivity. On the other side, consolidation can make an already concentrated market more difficult for smaller competitors to enter.

The American-US Airways settlement required the carriers to give up valuable airport assets, including slots at Reagan National and LaGuardia and gates or facilities at several other major airports (U.S. Department of Justice, 2013). To me, this demonstrates the tradeoff regulators face. Blocking every merger could prevent airlines from achieving legitimate network and operating efficiencies, but approving mergers without conditions could make concentrated airports even harder for competitors to enter.

For future mergers, I believe regulators should require strong evidence that claimed efficiencies will benefit the transportation network and consumers, not just the companies combining. As concentration increases, the competitive cost of another major merger becomes more significant.

Conclusion

My main takeaway from this case is that airline consolidation cannot be judged only by whether airlines become larger or more profitable. From a transportation management perspective, consolidation can improve network coverage, aircraft utilization, purchasing leverage, maintenance planning, and overall efficiency. At the same time, those benefits have to be weighed against what happens when new airlines cannot obtain gates, slots, or enough network access to compete.

The operating results of American, Delta, Southwest, and United show how difficult it would be for a new entrant to immediately match their fleets, networks, passenger volumes, and financial resources. Their scale creates efficiencies, but it also reinforces some of the barriers facing smaller competitors.

For that reason, I would not recommend returning to the regulatory system that existed before 1978. I would keep the deregulated system while aggressively protecting airport access, enforcing antitrust laws, and carefully reviewing future mergers. In my view, that provides the best balance between allowing airlines to make efficient operating decisions and giving new and smaller carriers a realistic opportunity to compete.

References

American Airlines Group Inc. (2026). 2025 annual report [Form 10-K]. U.S. Securities and Exchange Commission. https://www.sec.gov/Archives/edgar/data/6201/000000620126000014/aal-20251231.htm

Delta Air Lines, Inc. (2026). 2025 annual report [Form 10-K]. U.S. Securities and Exchange Commission. https://www.sec.gov/Archives/edgar/data/27904/000002790426000013/dal-20251231.htm

Novack, R. A., Gibson, B. J., Suzuki, Y., & Coyle, J. J. (2019). Transportation: A global supply chain perspective (9th ed.). Cengage Learning.

Southwest Airlines Co. (2026). 2025 annual report [Form 10-K]. U.S. Securities and Exchange Commission. https://www.sec.gov/Archives/edgar/data/92380/000009238026000004/luv-20251231.htm

United Airlines Holdings, Inc. (2026). 2025 annual report [Form 10-K]. U.S. Securities and Exchange Commission. https://www.sec.gov/Archives/edgar/data/100517/000010051726000023/ual-20251231.htm

U.S. Department of Justice. (2013, November 12). Justice Department requires US Airways and American Airlines to divest facilities at seven key airports to enhance system-wide competition and settle merger challenge [Press release]. https://www.justice.gov/archives/opa/pr/justice-department-requires-us-airways-and-american-airlines-divest-facilities-seven-key

U.S. Government Accountability Office. (2001). Aviation competition: Challenges in enhancing competition in dominated markets (GAO-01-518T). https://www.gao.gov/assets/gao-01-518t.pdf