The economic impact of the ATA/Southwest Airlines code-share agreement

Abstract

This paper examines the economic impact of the code-sharing agreement between ATA and Southwest Airlines, the first time Southwest has chosen to enter markets via a code-share alliance rather than direct entry. We examine the impact of complementary code-sharing on incumbent airline's fares and passenger volumes and also the overall impact on consumer welfare in Denver airline markets. Empirical results show that air fares decreased and passenger volumes increased for incumbent carriers operating on code-shared routes. Further, we find evidence that this code-sharing arrangement increased both consumer and producer surplus. Thus, the well-known “Southwest Effect” is observed not only when Southwest enters a route directly, but also when it enters a route via a code-share agreement with another airline.