COMPETITIVE EFFECTS OF INTERNATIONAL AIRLINE COOPERATION

Abstract

This article analyzes the impact of varying degrees of airline cooperation on nonstop and connecting international traffic using detailed datasets of travel between the United States and other countries from 1998 to 2015. For connecting passengers, we find that antitrust immune alliances (ATIs) generate fare reductions (relative to interline or simple codeshare itineraries), although these reductions are not significantly larger than those generated by alliances without antitrust immunity. In contrast, “metal neutral” joint ventures (JVs) lead to substantially larger fare reductions, similar to those associated with online service in which a single carrier serves the entire connecting itinerary. For nonstop passengers we find that the formation of an ATI or JV between two or more airlines serving a route does not generate higher fares. Finally, we find that ATIs and JVs are associated with increased segment traffic and net entry on routes. Our results collectively demonstrate that, on the whole, ATI grants—particularly when coupled with the formation of JVs—have been strongly procompetitive, generating lower fares on connecting routes and increased traffic on segments served by multiple alliance partners, with no associated increase in nonstop fares where partner airlines overlap operations.