Global airline alliances and profitability: A difference-in-difference analysis

Abstract

Alliances and partnerships between airlines are entered into to create competitive advantage, reduce costs, and expand network reach. Three global alliance clusters emerged, with founding partners located in the major geographic regions, and often already involved in bilateral partnerships with other founders. This study examines whether the formation of global airline alliances, with its related expansion of network reach, resulted in an increase in profitability for the founding members. Employing difference-in-difference regressions, this study has found no evidence that the formation of global alliances improved the profitability of founding member airlines, or conferred an economic advantage over airlines that were not founding members. This result is robust across geographic regions, individual global alliances, and alternative event dates. The results of this research suggest that regulators should be less anxious that by sanctioning these closer relationships they are providing major carriers with opportunities for excessive profits.