Essays On Economics Of Airline Alliances
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| Author | : Xin Xie |
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| Total Pages | : |
| Release | : 2014 |
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This dissertation constitutes two essays in the field of industrial organization. Specifically, the research focuses on empirically assessing the market effects of airline alliances. The first essay examines how codesharing, a form of strategic alliances, by airlines affects market entry decisions of potential competitors. Researchers have written extensively on the impact that strategic alliances between airlines have on airfare, but little is known of the market entry deterrent impact of strategic alliances. Using a structural econometric model, this essay examines the market entry deterrent impact of codesharing between incumbent carriers in U.S. domestic air travel markets. We find that a specific type of codesharing between market incumbents has a market entry deterrent effect to Southwest Airlines, but not other potential entrants. Furthermore, we quantify the extent to which market incumbents' codesharing influences market entry cost of potential entrants. The second essay examines the effects of granting Antitrust Immunity (ATI) to a group of airlines. Airline alliance partners often want to extend cooperation to revenue sharing, which effectively implies joint pricing of their products (explicit price collusion). To explicitly collude on price, airlines must apply to the relevant government authorities for ATI (U.S. Department of Justice and Department of Transportation in the case of air travel markets that have a U.S. airport as an endpoint), which effectively means an exemption from prosecution under the relevant antitrust laws. Whether consumers, on net, benefit from a grant of ATI to partner airlines has caused much public debate. This essay specifically investigates the impact of granting ATI to oneworld alliance members on their price, markup, and various measures of cost. The evidence suggests that the grant of ATI facilitated a decrease in partner carriers' marginal cost, and increased (decreased) their markup in markets where their service do (do not) overlap. Furthermore, member carriers' price did not change (decreased) in markets where their services do (do not) overlap, implying that consumers, on net, benefit in terms of price changes.
| Author | : David R. Brown |
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| Total Pages | : |
| Release | : 2010 |
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My research focuses primarily on industrial organization and applied microeconomics. Specifically, I have extensively studied the airline industry. My first essay considers the effect of the Delta/Continental/Northwest codeshare alliance. Codeshare agreements can benefit airlines due to network expansion and benefit consumers by eliminating a double markup on flight itineraries with multiple operating carriers. However, policymakers have expressed concern that an alliance between airlines may facilitate price and service collusion in markets where codeshare partners' services overlap. I develop a structural econometric model that is able to separately identify supply and demand factors as sources of price-quantity changes caused by the creation of the alliance. The estimates from the model show both collusive and demand increasing effects associated with the codeshare alliance. However, the demand increasing effect is larger than the collusive effect. My second essay considers the effects of the recent Delta/Northwest merger. This merger is of particular interest because the two airlines are codeshare partners. Using pre-merger data, a counterfactual simulation is performed in which Delta and Northwest are assumed to merge. The results indicate that codeshare products owned by the merging firms experience higher predicted price increases relative to pure online products. In addition, the mean predicted price increases are relatively small across most markets. I also examine pre-merger predictions with post-merger data and analysis and find that the pre-merger predictions roughly accord with "de-merger" simulated effects using post-merger data. My third essay takes an extended look at airline mergers. When the Delta/Northwest merger was approved by the Department of Justice, consumer groups and policymakers were concerned that the merger and poor economic outlook would act as a catalyst for more mergers. This paper examines this possible scenario using simulations to model the effects of other codeshare partners merging in addition to Delta and Northwest. Results indicate that the predicted price increases for all mergers exhibit relatively small averages but large variances across markets. Further, the largest predicted price increases affect a small percent of products and an even smaller percent of passengers who choose products owned by a merging firm.
| Author | : Huubinh B. Le |
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| Release | : 2014 |
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My dissertation is comprised of two essays in the field of industrial organization with an emphasis on the airline industry. In particular, I investigate how airline mergers and alliances affect the components of total cost. By using a methodology that does not require the researcher to have cost data, I am able to infer marginal costs, fixed costs and sunk costs changes associated with mergers and alliances. My first essay examines two recent airline mergers--Delta/Northwest and United/Continental. Most post-merger analysis in airlines disproportionately focuses on assessing price rather than cost changes. Perhaps one reason is that reliable price data are more readily available. Despite the difficulty of obtaining cost data, researchers have sought to empirically assess whether cost efficiency gains associated with a merger outweigh the increased market power of the merged firm. The results from my analysis suggest that both mergers are associated with marginal and fixed costs savings, but higher market entry costs. The magnitude of the cost effects differed across the mergers. Moreover, I find that the market power effects of these mergers were negligible. My second essay investigates the cost effects of the codesharing alliance between Delta, Northwest and Continental Airlines. Codesharing is one of the most popular forms of airline cooperation that allows an airline to market and sell seats on its partners' flights as though it owns those flights. Studies have found that airline alliances have very little to no effect on total cost. Rather than analyzing cost as a whole, I study whether a disaggregate analysis on cost is more appropriate. I find evidence that forming an alliance helps generate more passenger traffic for the alliance partners thereby reducing the partner carriers' marginal cost. Even though the literature has found that the total cost effects to be small, an alliance can have a considerable impact on some components of cost.
| Author | : Olivier Armantier |
| Publisher | : |
| Total Pages | : 62 |
| Release | : 2005 |
| Genre | : Airlines |
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| Author | : Hendrik Vedder |
| Publisher | : GRIN Verlag |
| Total Pages | : 71 |
| Release | : 2008-12-09 |
| Genre | : Business & Economics |
| ISBN | : 3640228596 |
Bachelor Thesis from the year 2008 in the subject Business economics - Business Management, Corporate Governance, grade: 1,9, European Business School - International University Schloß Reichartshausen Oestrich-Winkel (Chair of Strategic Aviation Management), course: Bacheloarbeit, language: English, abstract: “Companies are just beginning to learn what nations have always known: in a complex, uncertain world filled with dangerous opponents, it is best not to go it alone” (Ohmae, 1989, p. 143). This statement emphasises the significant developments in firms’ corporate strategy in the 1980s. As a response to the rise of globalisation, and thus, increased competition, companies throughout the world started collaborating with partners with interfirm cooperation. Their cooperative practices, though, were not equally relevant in all branches, but concentrated mainly on industries that were affected most by the in-creasing environmental dynamic and complexity. Therefore, firms in various industries, such as the automotive or telecommunication industry, established alliances with their competitors in order to stay competitive and to jointly expand into world markets. However, the aviation industry, in particular, has experienced downright alliance frenzy since that time. With the gradual liberalisation of international air transport, collabora-tions between carriers have steadily gained importance. Therefore, airline alliances have developed from purely horizontal links into more complex and integrated strategic alliances. These strategic alliances have been established mainly to bypass existing regula-tory restrictions and to adapt to customers' altered preferences by extending the airlines’ networks. However, with the incidents that occurred during the first years of the 21st century, such as the terrorist acts of 9/11, partner airlines were forced to react to the changed external conditions. This development highlights the high dependence of air-lines and their strategic behaviour on the external environment. Therefore, this thesis aims to analyse the external conditions that persuaded the airlines to align in complex strategic alliances, and how these factors influenced their objectives. Furthermore, the thesis reveals the extent to which the changes in the external environ-ment have induced a reorientation in the airlines’ alliance strategy.
| Author | : Sebastian Wagner |
| Publisher | : GRIN Verlag |
| Total Pages | : 22 |
| Release | : 2013-05-06 |
| Genre | : Business & Economics |
| ISBN | : 3656425620 |
Seminar paper from the year 2013 in the subject Business economics - Investment and Finance, grade: 1,0, University of Applied Sciences Wildau (Wildau Institute of Technology), course: Corporate Finance, language: English, abstract: The formation of modern airline alliances has been a key process and prominent tradition in the airline industry since the last three decades. The characteristics of these alliances vary in scopes and extend from branding or franchising of low density feeder or regional routes to the creation of global airline networks conducted by the world’s most powerful carriers. Due to various reasons airliners prefer the amenities of acting co-operative rather than competitive relationships. Overall, it is undeniable that the formation and the rapid growth of alliances has been a central topic of the airline industry. Meanwhile it is scientifically proven that the economical benefits and opportunities for airlines prevail possible threats and disadvantages. This project paper intends to give a detailed description of present alliance landscape and competition connected with chosen statistical data in the beginning. Furthermore the key competitive effects and motivations leading the formation of alliances are described and act as basis for this project paper. This is followed by a concise overview about the mentioned regulations relating to bilateral air service agreements and M&A in aviation industry. Based on that we will describe how the participation in an airline alliance can help to circumvent several constraints imposed by the current regulatory system. Finally the paper is closing with a critical look at the question whether airlines are airline alliances are the really the second best solutions or even sometimes intentionally chosen by the operators.
| Author | : Almas Heshmati |
| Publisher | : Springer |
| Total Pages | : 206 |
| Release | : 2016-05-18 |
| Genre | : Political Science |
| ISBN | : 981101017X |
This book focuses on the factors that support the strengths of international airlines in general and the Asian airline carriers in particular. Defining the quality of human capital as the level of education and the competence of airline employees, it analyzes the efficiency of 39 airlines in various regions, both in terms of production and cost structures. It argues that, despite Asia’s well-developed and globally competitive manufacturing sector, aided by open market practices, its overall service sector still lags far behind more advanced economies. As this does not stop Asia-based carriers from generally being more efficient than their counterparts in Europe and North America, the book investigates how competitiveness analysis of the airline industry can help Asian policymakers better prepare for the liberalization of the service sector, given how crucial this aspect is for the future growth of the Asia-Pacific region. Efficiency and Competitiveness of International Airlines offers a valuable resource for policymakers, airline employees, and researchers and students of microeconomics.
| Author | : Jong-Hun Park |
| Publisher | : |
| Total Pages | : 56 |
| Release | : 1998 |
| Genre | : Aeronautics, Commercial |
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Investigates the effects on air fares, passenger volume, and consumer surplus of four major alliances in North Atlantic aviation markets - British Airways/US Air, Delta/Sabena/Swissair, KLM/Northwest and Lufthansa/United Airlines.
| Author | : Caixia Shen |
| Publisher | : |
| Total Pages | : 172 |
| Release | : 2012 |
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Abstract: Code-sharing is an agreement between two (or three, in one case) carriers, in which one carrier (the operating carrier) allows another carrier (its code-share partner, the marketing carrier) to market and sell seats on some of the operating carrier's flights under the marketing carrier's reservation code. When a proposal of code-sharing between two major airlines is initiated, a debate often ensues between the policy-makers (U.S. Department of Justice) and carriers. The U.S. Department of Justice hesitates to approve such proposals due to concerns that these agreements may reduce competition and hence induce a loss of consumer welfare, given the fact that potential code-sharing partners already have high market shares. However, carriers have claimed that passengers benefit from code-sharing since it provides more product choices and destinations. My dissertation analyzes the competitive effects of code-sharing. The first chapter is a reduced-form analysis of competitive effects. I found code-shared products are priced significantly lower. I conjecture that product differentiation allows airlines to price discriminate consumers. The second chapter is then a structural analysis considering both consumer demand and firms' costs and markups (for both code-shared and non code-shared products) to investigate price discrimination. I found that even airlines who are in a code-sharing partnership compete with each other, as is reflected in their competitive pricing strategies, including but not restricted to the use of second degree price discrimination. The economies of code-sharing reduce marginal cost, and firms are able to price at higher markups. Consumers benefit from quality variety even though code-shared flights have lower quality compared to non-codeshared ones. This implies that demand increases and consumers have large total surplus if code shared products are regarded as different products from non-code shared flights. The third chapter investigates the competitive price effects of the CO-NW-DL three-way code-sharing. I analyze how pricing changes after the merger between two code-share partners (DL and NW), and compare this to the competitive price effects after code-sharing.
| Author | : Pablo Coto-Millán |
| Publisher | : Springer Science & Business Media |
| Total Pages | : 378 |
| Release | : 2007-02-02 |
| Genre | : Business & Economics |
| ISBN | : 3790817651 |
This book explores analytical methods used in transportation economics and policy analysis. Encompassing fields of economics such as Industrial Organisation, Welfare Economics, General Equilibrium Theory and Input-Output-Analysis, the study of transport from an economic point of view serves as a test bench for applying methodologies of economic science to the real world. Each chapter opens with a brief theoretical introduction before evaluating case studies, using the state-of-the-art statistical and econometric techniques.
