Merger between Airlines in Financial Distress

Abstract

The merger in 2009 between China Eastern Airlines and Shanghai Airlines came at a time when both airlines were suffering heavy losses and were struggling for survival during the global financial crisis. An examination of the prices on China Eastern's seven domestic Shanghai-based routes suggests that on average fares on departure days increased by 22% post-merger. It appears that the merger conferred China Eastern with significant market power owing to the parallel nature of this acquisition, thereby resulting in the record profit reported in 2010. This reminds regulatory authorities to remain vigilant in handling airline mergers when numerous parallel routes are involved.

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