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Assessing the price effects of airline alliances on complementary routes

Author

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  • Zou, Li
  • Oum, Tae H.
  • Yu, Chunyan

Abstract

This paper investigates the impacts of complementary alliance on airfares. The conventional wisdom argues that complementary airline alliances reduce airfares for passengers on the flow-through routes as a result of the elimination of double marginalization and efficiency gain. On the other hand, since complementary alliances help improve connecting services through one-stop check-in, better schedule coordination, etc., passengers are willing to pay higher prices for the enhanced services. That is, complementary alliances have both positive and negative effects on airfares for flow-through tickets that counteract each other. The net impact, therefore, is uncertain, a priori. Our theoretical model shows that the overall effects of complementary alliances on airfares depend on the relative strengths of the airfare reducing effects due to cooperative pricing setting and the increased willingness to pay for services improvements. Our empirical analysis based on data from the North trans-Pacific markets in October 2007 finds that member airlines of Star Alliance and Skyteam Alliance appear to charge significantly higher prices for through-tickets than the sum of segment fares on complementary routes, whereas for oneworld Alliance members, the upward and downward effects on airfares seem to counterbalance each other. Moreover, the price markup for through ticket is higher for business passengers than for leisure passengers.

Suggested Citation

  • Zou, Li & Oum, Tae H. & Yu, Chunyan, 2011. "Assessing the price effects of airline alliances on complementary routes," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 47(3), pages 315-332, May.
    • Handle: RePEc:eee:transe:v:47:y:2011:i:3:p:315-332
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    Cited by:

    1. Cobeña, Mar & Gallego, à ngeles & Casanueva, Cristóbal, 2019. "Diversity in airline alliance portfolio configuration," Journal of Air Transport Management, Elsevier, vol. 75(C), pages 16-26.
    2. Min, Hokey & Joo, Seong-Jong, 2016. "A comparative performance analysis of airline strategic alliances using data envelopment analysis," Journal of Air Transport Management, Elsevier, vol. 52(C), pages 99-110.
    3. Czerny, Achim I. & Jost, Peter-J. & Lang, Hao & Mantin, Benny, 2021. "Carrier collaboration with endogenous networks: Or, the limits of what carrier collaboration can achieve under antitrust immunity," Journal of Air Transport Management, Elsevier, vol. 94(C).
    4. Yimga, Jules O., 2017. "Airline code-sharing and its effects on on-time performance," Journal of Air Transport Management, Elsevier, vol. 58(C), pages 76-90.
    5. Peng, I-Chin & Lu, Hua-An, 2022. "Coopetition effects among global airline alliances for selected Asian airports," Journal of Air Transport Management, Elsevier, vol. 101(C).
    6. Wang, Kelly Yujie & Wen, Yuan & Yip, Tsz Leung & Fan, Zuojun, 2021. "Carrier-shipper risk management and coordination in the presence of spot freight market," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 149(C).
    7. Zhang, Shengrun & Fuellhart, Kurt & Yang, Wendong & Tang, Xiaowei & Witlox, Frank, 2019. "Factors shaping non-stop airline services in the transatlantic air transport market: 2015–2017," Journal of Transport Geography, Elsevier, vol. 80(C).
    8. Yimga, Jules, 2022. "Code-sharing agreements and path quality in the US airline industry," Transport Policy, Elsevier, vol. 116(C), pages 369-385.
    9. Gayle, Philip G. & Xie, Xin, 2019. "Firms’ markup, cost, and price changes when policymakers permit collusion: Does antitrust immunity matter?," Journal of Economic Behavior & Organization, Elsevier, vol. 157(C), pages 680-707.
    10. Volodymyr Bilotkach, 2019. "Airline Partnerships, Antitrust Immunity, and Joint Ventures: What We Know and What I Think We Would Like to Know," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 54(1), pages 37-60, February.
    11. Klophaus, Richard & Lordan, Oriol, 2018. "Codesharing network vulnerability of global airline alliances," Transportation Research Part A: Policy and Practice, Elsevier, vol. 111(C), pages 1-10.
    12. Yea, Minyoung & Kim, Daeki & Cheong, Taesu & Moon, Joon & Kang, Sungho, 2022. "Baking and slicing the pie: An application to the airline alliance's profit-sharing based on cooperative game theory," Journal of Air Transport Management, Elsevier, vol. 102(C).
    13. Gerben de Jong & Christiaan Behrens & Hester van Herk & Erik (E.T.) Verhoef, 2018. "Airfares with codeshares: (why) are consumers willing to pay more for products of foreign firms with a domestic partner?," Tinbergen Institute Discussion Papers 18-077/VIII, Tinbergen Institute, revised 28 Feb 2021.
    14. Zou, Li & Chen, Xueqian, 2017. "The effect of code-sharing alliances on airline profitability," Journal of Air Transport Management, Elsevier, vol. 58(C), pages 50-57.
    15. Ma, Wenliang & Wang, Qiang & Yang, Hangjun & Zhang, Yahua, 2020. "Evaluating the price effects of two airline mergers in China," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 141(C).
    16. Merkert, Rico & Morrell, Peter S., 2012. "Mergers and acquisitions in aviation – Management and economic perspectives on the size of airlines," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 48(4), pages 853-862.
    17. Fageda, Xavier & Flores-Fillol, Ricardo & Lin, Ming Hsin, 2020. "Vertical differentiation and airline alliances: The effect of antitrust immunity," Regional Science and Urban Economics, Elsevier, vol. 81(C).

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