Code-share Agreements Research Articles

Efeitos em preço do compartilhamento de voos de companhias aéreas como reação à presença de um competidor de baixo custo

Este trabalho analisa os efeitos concorrenciais de um tipo de aliança estratégica que vem recebendo maior atenção por parte das companhias aéreas: o acordo de compartilhamento de voos (<em>Codesharing</em>). Busca avaliar os efeitos em preços gerados com a implementação do <em>codesharing</em> quando efetuado entre duas grandes companhias aéreas incumbentes frente à entrada de um competidor de operação de custo baixo (<em>Low Cost Carrier</em>), tema ainda não explorado na literatura. Para isso, foi desenvolvida uma modelagem econométrica com emprego de estimador de efeitos fixos para aplicação em um estudo de caso evidenciado no início dos anos 2000, o “<em>Codeshare</em> Varig-TAM”. O modelo investiga os efeitos no preço das passagens das empresas incumbentes após entrada do competidor <em>Low Cost</em>. Os resultados indicam reduções do preço médio em todos os casos. Para condições em que não existia o <em>codeshare</em> implementado, a redução de preços era 12,4%. Por outro lado, quando o <em>codeshare</em> já estava em vigor, a redução foi apenas 8,3%. Estes resultados permitem inferir que o <em>codeshare</em>, pode ser uma ferramenta estratégica das grandes empresas para suavizar a ação de redução de preços (e perdas de lucratividade) quando competindo diretamente com <em>Low Cost Carriers</em>.

The effect of code-share agreements on the temporal profile of airline fares

This paper aims at investigating how the pricing strategy of European airlines is affected by code-share agreements on international routes. Our data cover several routes linking the main UK airports to many European destinations and includes posted fares collected at different days before departure. By analyzing the temporal profile of airline fares, we identify three main results. First, code-share increases fares especially for early bookers. Second, the higher prices in code-shared flights are offered by marketing carriers. Finally, in single operator code-shared flights (unilateral code-share), the pricing profile is flatter than under parallel code-share.

Is the Decision to Code-Share a Route Different for Virtual and Traditional Code-Share Arrangements

This paper analyzes factors that determine whether alliance carriers choose to remain in or leave a code-share agreement on individual routes. Different types of code-sharing are considered: traditional code-shared routes, virtual code-shared routes and those routes with both traditional and virtual code-sharing. Empirical results show that factors affecting alliance firms’ code-sharing decisions significantly differ for virtual versus traditional code-share agreements. Virtual code-sharing tends to take place in less dense markets and is not significantly affected by yields. This provides tentative support for the Ito and Lee (2005) argument that virtual code-sharing provides a mechanism by which carriers practice price discrimination (for instance, filling unoccupied seats in less dense markets). In contrast traditional code-sharing is found to be more likely to occur in dense markets and higher yields increase the probability of such arrangements. Thus, traditional code-sharing seems to be used to achieve the networking economics and cost savings derived from dense markets and thus appears to be more effective as an instrument to introduce competition into a market.

THE PRICE-INCREASING EFFECTS OF DOMESTIC CODE-SHARING AGREEMENTS FOR NON-STOP AIRLINE ROUTES

This article assesses the impact of domestic code-sharing agreements on prices of non-stop flights in the United States. The article finds a positive and significant correlation between code-sharing agreements and the level of airfares, and considers this to be the outcome of two anticompetitive effects: (1) a “round table” effect, produced when the exchange of commercially sensitive information among code-sharing partners facilitates coordination and collusion; and (2) a “double marginalization” effect, produced when carriers use code sharing to add a mark-up over their marginal costs. The article identifies an increase in airfares charged by code-sharing partners of more than 5 percent attributable to the “round table” effect. On top of this, the article finds further price hikes attributable to the “double marginalization” effect: ticketing carriers involved in code-sharing flights charge fares more than 4 percent higher than fares set by their code-sharing partner and almost 10 percent higher than other airlines in the same market.

On the Efficiency of Codeshare Contracts between Airlines: Is Double Marginalization Eliminated?

Previous research has suggested that codeshare agreements eliminate double marginalization that exists when unaffiliated airlines independently determine the price for different segments of an interline trip. Using a structural econometric model, this paper investigates whether codeshare contracts do eliminate double marginalization. The results suggest that both upstream and downstream margins persist when the operating carrier of a codeshare product also offers competing single-carrier product(s) in the concerned market. Furthermore, counterfactual simulations from the model suggest that efficient pricing of these codeshare products would lower their price, and yield nontrivial increases in consumer welfare. (JEL D86, L13, L14, L93)

Airline passenger traffic openness and the performance of Emirates Airline

Abstract This paper uses cross-sectional data for 155 routes connecting Dubai to various international destinations to assess the relationship between air travel openness, representing airline agreements and the framework governing airlines, and the economic performance of Emirates Airline. We find that increased openness is associated with higher enplanement and lower fares. We also find that code-sharing agreements are associated with higher enplanement and higher fares. Given the complementary nature of such agreements for Emirates, this suggests potential collusive behavior. While these findings are specific to Emirates, they are regionally relevant as most carriers in the Gulf operate in an environment that is similar to Emirates's. Thus, further liberalization of the passenger airline markets of UAE and other Gulf carriers – which includes the elimination of code-sharing-related collusive agreements – would likely result in increased expenditure on air travel and lower production costs (from ensuing competitive pressures). Such outcomes can potentially yield net welfare gains for the UAE and other Gulf countries.

International Airline Markets: On Government and Airline Contracts

This paper provides evidence of the impact on frequencies and airfares of the type of codeshare agreement signed between airlines and the level of liberalization signed between governments in the international aviation market. Our work distills two basic insights: (i) increasing the level of liberalization has a positive effect on frequency which grows substantially and significantly as a function of the level of freedom and overshadows the impact of codeshares; (ii) codeshare agreements are heterogeneous in the sense that hardblock codeshares, pooling and royalty agreements generally result in higher airfares whereas free sale and soft block codeshares are generally associated with lower airfares. However, these effects may vary by fare class (e.g., premium and economy). Additionally, none of the codeshare agreements have a significant and consistent impact on market frequency. Our results suggest that governments and policy makers should liberalize the international aviation markets in order to increase frequency that stimulates reductions in airfares, and it further suggests that carve outs on the hub to hub links in a codeshare agreement may not need to be enforced, rather restrictions should be imposed on the type of codeshare agreements signed by the airlines.

On airlines code-share optimisation: a modelling framework and analysis

This paper presents an optimisation-based modelling framework for evaluating the profitability of an operating carrier's code-share agreements with multiple partnering carriers. The model examines the terms of under-negotiation agreements including flights and the number of seats open for code-share and associated fare discounts. The model provides a recommendation of the set of agreements to be accepted by the air carrier. The model explicitly considers the trade-off between the different agreements as well as the trade-off between the incremental revenue from the code-share agreements and the potential loss of revenue due to the displacement of the non-code-share passengers. A set of experiments that illustrate the model capabilities for hypothetical code-share scenarios is presented.

Airline capacity setting after re-regulation: The Brazilian case in the early 2000s

The Brazilian airline industry is one of the few cases where there was temporary re-regulation of the market after years of economic liberalization. This was done on the basis of excess capacity and after systemic financial crises. Regulators reintroduced mechanisms for market intervention in 2003–2004, with airlines no longer allowed to expand frequencies and fleets at will. Additionally, a code-share agreement between the two biggest network carriers was encouraged to increase the overall profitability. This study looks at an extensive panel of routes to identify elements that affected the decisions Brazilian domestic scheduled passenger airlines made regarding capacity, the factor most affected by the re-regulation.

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

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.

A micro-simulation approach for Airline Competition Analysis and Demand Modelling

This paper presents a modelling framework for Airline Competition Analysis and Demand Modelling (ACADM). The framework adopts a micro-simulation approach in which airline service capacity and passenger demand are represented at the finest disaggregate level. The main contribution of this modelling framework is that it simultaneously considers primary factors that affect air-carrier competition. These factors include schedule attractiveness, seat inventory control, code share agreements and ticket distribution strategies. Preliminary validation experiments in the US domestic markets show that the model replicates real-world competition scenarios with acceptable accuracy.

Domestic Airline Alliances and Consumer Welfare

This paper investigates the consumer welfare consequences of the recent code-share agreement between Continental Airlines and Northwest Airlines. We develop a discrete choice model based on individual flight characteristics. This structural model recognizes that consumers i) may have heterogeneous preferences for flight attributes, and ii) may face different prices for the same flight. The empirical methodology also deals with the measurement error problem stemming from the absence of consumer level data on prices. The estimation results suggest that, while the code-share agreement did not impact consumers significantly on average, it increased the average surplus of connecting passengers, but it decreased the average surplus of nonstop passengers. Interestingly, the magnitude of our welfare results may be attributed in large part to changes in products characteristics other than prices.

Interorganizational information sharing in the airline industry: An analysis of stock market responses to code-sharing agreements

This paper addresses the issue of inter-organizational information sharing alliances and their impacts on firm values from the perspective of inter-organizational coordination between partners in the airline industry setting. We investigate the shareholder wealth effects of inter-organizational information-sharing alliance arrangements, using 131 code-sharing agreements in the airline industry during 1984---1997. Employing event study methodology we found that the information sharing alliances between similar partners did create positive value in terms of stock returns at the time of alliance announcements to major US airlines. However, alliances between dissimilar partners resulted in significant losses of shareholder value to the major airlines. These results strongly support our main hypotheses that information-sharing alliances are successful and the benefits of such alliances are realized only when the coordination difficulties can be effectively dealt with.

Code-Sharing Agreements in Scheduled Passenger Air Transport–The European Competition Authorities' Perspective

Code-Sharing Agreements in Scheduled Passenger Air Transport–The European Competition Authorities' Perspective

Complementary versus semi-complementary airline partnerships

As low-cost airlines or carriers excluded from international markets by regulation may seek to expand internationally in an indirect way through code-sharing agreements, they can choose partner airlines from among domestic or international carriers. The former case results in a semi-complementary partnership, while in the latter a classic complementary alliance is formed. This paper compares welfare properties of the two types of partnerships under economies of traffic density. Semi-complementary partnerships yield higher total welfare (but not necessarily lower prices) when economies of traffic density are strong, demand is more price-sensitive, or where a carrier feeding domestic traffic to international routes is a lower cost one.

Evidence on Pricing from the Continental Airlines and Northwest Airlines Code-Share Agreement

Recent code-share agreements among major US airlines represent a significant development in the airline industry, as these agreements allow the partner airlines to sell seats on each other's flights across the US. In this paper, we examine with original data how prices and passenger volumes were affected by the first significant alliance among major US carriers, the 1999 alliance between Continental Airlines and Northwest Airlines. We find evidence of higher passenger volumes and lower prices across markets in which CO-NW code-shared. However, we also find evidence of significantly higher prices across markets with nonstop flights from CO and NW. In these markets, our results suggest that, as CO-NW used their agreement to expand the pool of passengers to whom they can sell seats on their aircraft, they have in turn extracted a higher price, on average. Hence, airlines need not be colluding for prices to rise following code-share agreements. This finding is significant for policy-makers traditionally focus on collusion in their reviews of these agreements.

Complementary vs Semi-Complementary Airline Partnerships

As low-cost airlines or carriers excluded from international markets by regulation may seek to expand internationally in an indirect way through code-sharing agreements, they can choose partner airlines from among domestic or international carriers. The former case results in a semi-complementary partnership, while in the latter a classic complementary alliance is formed. This paper compares welfare properties of the two types of partnerships under economies of traffic density. Semi-complementary partnerships yield higher total welfare (but not necessarily lower prices) when economies of traffic density are strong, demand is more price-sensitive, or where a carrier feeding domestic traffic to international routes is a lower-cost one.

The geographic effects of US airline alliances

Code-share agreements in the airline industry allow participants the opportunity to offer service to destinations they do not physically serve. This paper concentrates on the recently proposed domestic code-share agreements between United/Delta, Continental/Northwest, and American/US Airways, six of the largest commercial carriers in the United States. Changes in destinations served as well as geographic regions of dominance based upon market share are examined. The result is a clearer view of regions of dominance for each alliance in the United States. The proposed United/Delta alliance shows an expansion across the entire United States. The Continental/Northwest alliance allows the carriers to compete with the “Big Three”. The American/US Airways proposed alliance appears to benefit US Airways (US) more than American.

Competition and Entry in Small Airline Markets

Competition and Entry in Small Airline Markets

Sources of Economic Rent in the Deregulated Airline Industry

THE airline industry has always captured the imagination, but never more so than during the current deregulatory period. To understand the sources of economic rents that are the driving forces for change in this industry, we employ an interdisciplinary analysis drawn from the economics and strategy literature. This analysis allows us to identify sources of rent that are geographically based (local monopoly sources) and others that stem from economies of scale-based advantages in providing nationwide service (oligopoly sources). We examine the economic and strategic characteristics of these diverse sources of rent and suggest some policy concerns about the emerging airline market structure. An interdisciplinary approach is taken because economic models normally assume that firms have identical factor costs and similar production opportunities. Yet much of our ability to frame the forces for change in the airline industry begins with the recognition that firms came into the deregulatory period with differing factor costs and differing locational endowments and, hence, differing production opportunities. Building on Porter'sl concept of strategic groups, we offer evidence that air carriers