International Airfares in the Age of Alliances: The Effects of Codesharing and Antitrust Immunity

Abstract

This paper provides empirical evidence showing the effect of airline cooperation on the interline fares paid by international passengers. The analysis focuses on two measures of cooperation, codesharing and antitrust immunity, and the results show that their partial effects are both negative. The presence of codesharing on an international interline itinerary reduces the fare by 8%-17%, with the exact number depending on the sample used and the estimation method. Moreover, the presence of antitrust immunity reduces the fare by 13%-21%. Codesharing and immunity are substitutes, however, in the sense that their combined effect is smaller than the sum of their partial effects. Taking account of this difference, which is captured by an interaction variable in the regressions, the combined effect ranges between 17% and 30%. These results provide strong evidence that airline cooperation in the fare-setting process generates substantial benefits for interline passengers. © 2003 President and Fellows of Harvard College and the Massachusetts Institute of Technology.