Market study evaluates competition effects of mergers in the Brazilian market of civil aviation

The study analyses the effects of the transactions Gol/Webjet and Azul/Trip on the average airfare price and number of seats sold on domestic routes

Published in Dec 06, 2021 04:26 PM Updated in Jun 29, 2023 04:58 PM

On 28 August 2021, the Department of Economic Studies (DEE) of CADE published the working paper “Ex post mergers evaluation: evidence from the Brazilian airline industry”. The study focused on assessing the impacts of CADE’s decisions concerning two transactions carried out in the Brazilian civil aviation market and it was released in the Seminário Economia & Defesa da Concorrência – a seminar held by the authority regarding antitrust and economy.

The study made use of the difference in differences methodology, characterized by estimating the impact of changes in the price of airline tickets and in the number of seats sold in a pre- and post-merger scenario. Thus, the DEE evaluated whether the two transactions approved by CADE in recent years – i.e. the acquisition of Webjet by Gol and the merger between Azul and Trip – had a direct impact on the average price of air tickets and the number of seats sold on overlap routes (domestic routes) in comparison to non-overlap routes.

To carry out the analysis, the DEE considered variables related to the weighted average price of the airfare and seats sold from July 2010 to December 2019 per route. Regarding Gol and Webjet, results indicated a reduction of about 8% in Gol’s fare on routes in which Gol and Webjet operated before the merger (overlap routes). The number of seats sold on these routes increased approximately 38% after the transaction.

Regarding the case Azul and Trip, no statistically significant effect was found in the airfares, but the number of seats sold increased nearly 27% on overlap routes after the merger.

According to the DEE, it is important to highlight two facts. First, the Department did not find anticompetitive effects. Second, the mergers were cleared subject to conditions related to the efficiency of the Santos Dumont airport in Rio de Janeiro. Therefore, the Department concluded “CADE achieved its purpose of protecting competition” in this sector.

Access the working paper “Ex post mergers evaluation: Evidence from the Brazilian airline industry”.

Watch the recording of the seminar (Portuguese only).