Competitive Effects of Joint Ventures in the International Airline Industry

Abstract

In the past two decades, many international airline carriers have expanded their cooperation by forming various joint ventures (JVs). One key feature of these JVs is that they require carriers to determine certain airfares jointly and integrate their operations as a single carrier in the market for international air travel. This paper tries to evaluate the impact of JVs on airfares. The focus is on a set of behind-to-gateway markets between a non-gateway U.S. city and a foreign gateway city, where both online and codeshare flights are offered, to study how the airfares of online flights are affected after carriers form JVs. A new hypothesis is discussed that JVs increase the airfares of online flights. Based on this hypothesis, an empirical model is built to evaluate the Oneworld alliance’s transatlantic JV established in July 2010. This empirical analysis, which uses the U.S. Department of Transportation (U.S. DOT)’s Airline Origin and Destination Survey (DB1B) international data from 2008 to 2013, indicates that the Oneworld transatlantic JV increased airfares of online flights by about 3%–4% in the behind-to-gateway markets. Previous studies, which emphasized the airfare reductions of codeshare flights in the connecting markets, may have overestimated the benefits to consumers from JVs. U.S. DOT can better protect consumers by evaluating plausible airfare increases in online flights in the behind-to-gateway markets when reviewing new applications for JVs.