Predictive Methods for Using Capacity Data to Estimate Market Shares and the Extent of Risk Pooling by Airline Alliance Partners under Parallel Codesharing

Abstract

Abstract Forming strategic alliances has become a common practice for major airlines in today's global market. The arrangement of parallel codesharing provides alliance partners serving the same route with the unique opportunity to conduct risk pooling with shared capacity and information. In this article, we develop predictive methods to analyze the effects of capacity sharing and risk pooling on the market and operational performances of airline alliance partners under parallel codesharing. We establish the interrelationship between market share and capacity through the total demands and probabilities under four different cases of demand/supply allocations between two alliance partners. We also propose methods for identifying the values of key parameters to estimate the extent of risk pooling on selected international routes. Our analyses show that risk pooling with shared capacity is a common phenomenon on the selected routes under parallel codesharing. In addition, some of the routes have rather uneven distributions of the opportunity for risk pooling between alliance partners. Several applications of the proposed methods in both the private and public sectors, such as evaluating gain-sharing by alliance partners, revising bilateral agreements, as well as fine-tuning capacity-, revenue-, and cost-sharing arrangements, are also discussed.