International Airline Codesharing and Consumer Choice Behavior: Misconceptions vs. Quality Signals

Abstract

Economic globalization has spurred the growth of international cooperation between companies. This paper analyzes partnerships between foreign and domestic firms as a source of signaling advantages. When partnerships affect the products offered, it is not possible to isolate this signaling impact. Virtual codesharing is an important type of marketing partnership in aviation that does not change the product and hence provides the opportunity to identify the direct impact of partnerships on consumer valuation of the partnered products. Roughly 75 per cent of the flights in trans-Atlantic and Pacific markets involves codesharing. Typically, the consumer buys the ticket with the domestic airline, while a foreign airline operates the flight. Analyzing individual-level choice data from a representative panel of Australian air travelers, we find that the average consumer is willing to a pay a premium between 4 and 5.5% of the ticket price when a flight by a foreign carrier is codeshared with the national carrier Qantas. When flying to a less familiar destination, risk averse consumers are willing to pay a premium about two times higher than non-risk averse consumers, suggesting that partnerships have a strong impact on consumer valuation through quality signaling.