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Making airline coalition frequent-flyer programs profitable: An analytical investigation

Author

Listed:
  • Guo, Xingchen
  • Jiang, Changmin
  • Jiang, Siming
  • Guo, Huanxiu

Abstract

This paper investigates the conditions for airline coalition frequent flyer program (FFP) to exist. A stylized economic model is proposed to analyze both stand-alone and coalition FFP. With the help of numerical analysis, we identify the profit-maximizing conditions for both types of FFP and recognize critical thresholds for a profitable coalition FFP. We find that a coalition FFP would not be profitable if the reward value were far less than the total price of airfare and partner product. In addition, the optimal reward of a coalition FFP will increase as the total price rise. Finally, coalition FFP is unlikely to be more socially efficient than stand-alone FFP. Based on the analytical results, we provide policy implications and highlight the importance of optimal rewards, partner price coordination and market supervision for the successful and profitable airline coalition FFP.

Suggested Citation

  • Guo, Xingchen & Jiang, Changmin & Jiang, Siming & Guo, Huanxiu, 2023. "Making airline coalition frequent-flyer programs profitable: An analytical investigation," Transport Policy, Elsevier, vol. 141(C), pages 245-262.
    • Handle: RePEc:eee:trapol:v:141:y:2023:i:c:p:245-262
    DOI: 10.1016/j.tranpol.2023.07.008
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Loyalty program; Coalition program; Frequent flyer program; Airlines;
    All these keywords.

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L93 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Air Transportation
    • R48 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Government Pricing and Policy

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