An Empirical Analysis of Marketing Alliances between Major US Airlines

The paper proposes an empirical framework with endogenous ‡ight frequency and quantity decisions on an airline market. The framework is built around the hypothesis that passengers value not only the ticket price but also the cost of delay associated with an airline. At sample mean values, the cost of delay is estimated to account for 34% of the $280 full price of a seat on a ‡ight. Marketing alliances increase the demand from connecting passengers for seats on a ‡ight. Simulation results show that airlines respond to this increase by ‡ying fewer local (nonstop) passengers rather than by increasing their ‡ight frequency on a market.