Codeshare Alliances Research Articles

Interactive multiobjective programming in airline network design for international airline code-share alliance

This study presents an interactive airline network design procedure to facilitate bargaining interactions necessitated by international code-share alliance agreements. Code sharing involves partner airlines individually maximizing their own profits, while mutually considering overall profitability, traffic gains, and quality benefits for the markets in which they cooperate with their partners. This study uses a reference point method to solve the interactive multiobjective programming model, to support the bargaining interactions between two partner-airlines in an alliance negotiation. The impact of the code-share alliance network on market demand, alliance partners’ costs and profits, and levels of service are also discussed. A case study demonstrates the feasibility of applying the proposed models and elucidates how interactive multiobjective programming models may be applied to determine flight frequencies for airline code-share alliance networks. The results of this study provide ways by which alliance airlines can evaluate iteratively the output and profits of the alliance members under code-share alliance agreements.

Impacts of code-share alliances on airline cost structure: A truncated third-order translog estimation

The airline industry has undergone significant changes following deregulation more than a decade ago. A prominent development in recent years has been the proliferation of airline alliances. An important question arises: are alliances cost savings or competition reducing? This paper addresses the first part of the question. However, the answer has bearing on the second part as well, since results in industrial economics suggest that, unless a merger (or alliance) can substantially reduce costs, consumers are unlikely to enjoy lower prices [e.g., Farrell, J. and C. Shapiro (1990), “Horizontal mergers: An equilibrium analysis,” American Economic Review, 80(1), 107–26]. This paper estimates a truncated third-order translog cost function using quarterly firm-level data of 10 airlines for the period 1994QI to 2001QI. Using the estimated function, we assess whether alliances have any impacts on costs, and if so, the extent to which the cost structure of airlines are affected. It is found that the truncated third-order translog is an appropriate specification, and alliances do appear to lower costs. However, while the impacts are statistically significant, in economic terms the magnitude appears to be immaterial.

Airline Code-share Alliances and Costs: Imposing Concavity on Translog Cost Function Estimation

This paper provides an assessment of how airline code-share alliances affect the costs of the airline industry. It makes two contributions to the literature. First, it measures the effects of airline alliances by estimating a translog cost function using a panel dataset of 10 major U.S.-based airlines over 29 quarters. Secondly, it ensures concavity of the estimated cost function by using the procedure suggested by Ryan and Wales (2000, Economics Letters 67, 253–260). A conventional translog cost function is first estimated and scale estimates are computed. Unfortunately, the estimated function fails the curvature requirement, which makes interpreting the estimated effects of alliances somewhat dubious. Hence, we re-estimate the cost function by imposing local concavity restrictions. We find that large alliance partners have a small negative effect on airlines’ costs, but small alliance partners’ effect on costs appear to be positive, although the magnitude is negligible. We also find material differences in the estimates of scale economies after imposing local concavity.

Strategic airline alliances and endogenous Stackelberg equilibria

Abstract This paper analyzes the economic effects of the code-sharing alliances between an international and a domestic airline. If these two allied airlines and a separate unallied international airline endogenously choose the role of fare-leader or fare-follower, two types of Stackelberg equilibria exist. This finding suggests that the Stackelberg solution seems reasonable, and provides a guideline for the airlines’ role-choosing. Furthermore, although this complementary alliance improves the social welfare, it decreases the consumer surplus of the direct international passengers and may decrease that of the direct domestic passengers. The negative effects should also be considered when governments evaluate a complementary alliance.

Airline Code-share Alliances and Costs: Imposing Concavity on Translog Cost Function Estimation

This paper provides an assessment of the how airline code-share alliances affect the costs of the airline industry. It makes two contributions to the literature. First, it measures the effects of airline alliances by estimating a translog cost function using a panel dataset of ten major U.S.-based airlines over 29 quarters. Secondly, it ensures concavity of the estimated cost function by using the procedure suggested by Ryan and Wales (2000). A conventional translog cost function is first estimated and the usual elasticities and scale estimates are computed. Unfortunately, the estimated function fails the curvature requirement, which makes interpreting the estimated effects of alliances somewhat dubious. Hence, we re-estimate the cost function by imposing the local concavity restrictions. We find that alliances have a negative effects on airlines' costs, but the magnitude appears small. When compared with estimates obtained earlier, we find material differences exist with the imposition of local concavity.

International airline alliances An analysis of code-sharing's impact on airlines and consumers

From January 1992 to June 1995, the number of code-sharing alliances between US and foreign airlines more than tripled, increasing from 19 to 65. This paper examines the impacts of these alliances on airlines and consumers and is drawn largely from our recent report on code-sharing. 1 1 The views expressed in this paper are those of the authors and do not necessarily represent the views of the US General Accounting Office (GAO). However, this article is based largely on our recent report International Aviation: Airline Alliances Produce Benefits, but Effect on Competition is Uncertain (GAO/RCED-95-99, 6 Apr: 1995). Our analysis shows that code-sharing alliances can generate large gains for airline partners in terms of added passengers and revenues. Besides the overall scope of a code-sharing arrangement, we found a critical ingredient for successful alliances to be the degree of integration achieved by the airlines in operations and marketing. In addition, the paper describes how the gains achieved through alliances are largely zero-sum in that they come at the expense of competing airlines. However, it is likely that at least some of the gains come from new traffic stimulated by increased competition among alliances and between alliances and other airlines, although little data exist to confirm this hypothesis. Finally, this paper outlines the consumer benefits — such as reduced layover times — that alliances provide, but emphasizes that with respect to fares, insufficient data exist for analysis.