Code-sharing agreements and path quality in the US airline industry

Abstract

When appraising code-sharing partnerships, policymakers are primarily interested in how such marketing arrangements affect prices. Expectedly, the pricing effects of code-sharing have been abundantly studied. This paper examines the impact of codeshare agreements on the itinerary routing of airline products in U.S. domestic markets. Using data from the U.S. Bureau of Transportation Statistics, we identify two main findings. First, consistent with the literature, we find that the overwhelming majority of domestic code-share itineraries involve a single operating carrier, a practice we refer to as virtual code-sharing. Second, and most importantly, we find that virtual (traditional) codeshare itineraries are associated with better (worse) path quality relative to itineraries marketed and operated by a single carrier in the same market. The path quality effects we find come from different sources. In the case of virtual code-sharing, the positive path quality effects come from both short- and long-haul markets whereas in the case of traditional code-sharing, the negative path quality effects originate from long-haul markets.