US Big Four capacity growth has pushed the natural oligopoly rules

The US domestic airline market is getting tougher for new entrants as the Big Four grow ever larger. In defining the Big Four we combined appropriate pre-merger fleets for the period to allow for a fair comparison. The growth for two of the Big Four spikes in an interesting way. It appears the oligopoly is currently out of balance and the question is how long can this go on? Also, a secondary question - how hard is it for a new entrant (like Moxy) in this market? Starting with national domestic market share, note the Big Four are getting bigger. The top part of each column is "Other" and it shrank to a steady 7%. Recent startups like JetBlue have stayed with the same market share. Alaska grew its market share by buying Virgin America. Even Southwest bought market share via AirTran. To provde context on the relative size of the US domestic market compared to the international market, the following table lists share of international capacity and traffic. Between 2010 and 2018 available seat capacity grew about 16%. This sounds measured and consistent with an oligopoly. But the next chart shows some growth worth deeper analysis as the capacity growth has not been as close as one might expect from an oligopoly. The growth at Delta and United stands out compared to that of American and Southwest. Delta and United are clearly above average capacity growth. Given the rules of an oligopoly, market share growth does not sit well with the members who have not seen the same growth rates. This "upsets the apple cart". Let's focus on Delta and United to see what the data suggest has been happening. The typical number of passengers per departure grew by 22% over the same period. Higher load factors are something every US air traveler is uncomfortably aware of. Traffic has grown faster than seat capacity. What have Delta and United been up to? Let's look at Delta first. Delta has seen its fleet activity rise steadily. There have been big shifts; the 757 fleet is rapidly waning accounting for 24% of flights in 2010 to 12% in 2018. The 737-900ER is growing and accounted for 11% of 2018 flights. The 717 fleet made a rapid impact from 2014, but that has also slowed. Delta's Airbus fleet, inherited from Northwest showed no real growth until the arrival of the A321. In 2010 the Airbus single-aisle fleet accounted for 22% of flights then dipped to 14% in 2018 but adding the A321, the Airbus share is back 22%. The dotted curve shows the average seats per departure. From 2014, with the arrival of the 737-900s, the average number of seats started to grow. Delta has grown its capacity by upgauging aircraft, focusing on A321 and 737-900 for domestic capacity. Next, let's look at United. Here there have also been significant changes. United migrated to larger 737 models as its 757 fleet diminished. The Airbus fleet looks like it is being flown out to retirement. United's capacity growth has come the same was Delta - larger aircraft. American and Southwest have also made this type of fleet decision. The former has been acquiring A321s while the latter has focused on the MAX8. But American and Southwest have been retiring old aircraft at similar rates to new arrivals. Delta and United appear to be acquiring faster than retiring. The oligopoly is currently out of balance.

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