Airline cooperation and international travel: analyses of the impact of antitrust immunity and joint ventures on fares and traffic

Posted by Social Science Research Network

Airline cooperation and international travel: analyses of the impact of antitrust immunity and joint ventures on fares and traffic

Yair Eilat (Government of the State of Israel), Mark A. Israel & Robert J Calzaretta Jr. (Compass Lexecon)

Abstract:     This paper analyzes the impact of varying degrees of airline cooperation on nonstop and connecting international traffic, using a detailed dataset of international travel between the United States and other countries for the years 1998 to 2015. We demonstrate that cooperation by airlines — most notably, the formation of “metal neutral” joint ventures, along with grants of antitrust immunity (ATI) more generally — generates substantial consumer benefits. Specifically, for connecting passengers, we find that ATIs generate fare reductions (relative to interline or simple codeshare itineraries), although these reductions are not significantly larger than those generated by airline alliances without immunity, while JVs lead to substantially larger fare reductions of around eight percent, nearly identical to the reductions associated with “online” travel with a single airline. For nonstop passengers, we find that ATI and JV cooperation between airlines does not, in general, generate higher nonstop fares on “overlap” routes where competing airlines are part of an ATI or JV. Finally, we find that ATIs and JVs are associated with increased segment traffic and net entry on existing and new routes. This expansion of output rounds out our results, demonstrating that, on the whole, ATI grants — particularly when coupled with the formation of JVs — have been strongly pro-competitive, generating lower fares on connecting routes and increased traffic on segments served by multiple alliance partners, with no associated increase in nonstop fares where partner airlines overlap.

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