Reductions in Competition Increase Airline Flight Delays and Cancellations
Since 2005, the U.S. airline industry’s service quality—airlines’ on-time performance and cancellation rates—has varied greatly. Considerable industry consolidation has also occurred since 2005, with three mergers involving six major carriers. The FAA Modernization and Reform Act of 2012 required our office to assess the effects of limited airline service options on the frequency of delays and cancellations.
To isolate the effects of limited competition on service quality separate from those of other factors such as congestion and weather, we constructed econometric models using data on 2,530 domestic routes flown by 20 airlines from the fourth quarter of calendar year 2005 through the fourth quarter of 2012. The models estimated the effects of competition on the length of arrival delays, the percentage of total flights that were late, and the percentage of total flights that were cancelled.
We found that variation in airline service quality related substantially to changes in the level of competition within airline markets. In particular, the effects of reduced competition on the average length of flight delays and cancellation rates were statistically significant and sizeable. For example, we estimated that when a market’s service options shrank from three equal-sized airlines to two, the average minutes of delay in the market increased by over 25 percent, and the flight cancellation rate increased by nearly 7 percent. We also found that the degree to which competition affected service quality depended on initial levels of competition. Following a reduction in competition, markets that started out fairly competitive experienced the greatest increase in delay length, and those that started out with fairly limited service options experienced the greatest increase in the cancellation rate.
We made no recommendations in this report.