Monday, January 7, 2019
Jan K. Brueckner, University of California, Irvine - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute) and Ricardo Flores-Fillol, Universitat Rovira i Virgili (URV) offer thoughts on Airline Alliances and Service Quality.
ABSTRACT: Abstract: Convenient scheduling, characterized by adequate flight frequency, is the main quality attribute for airline services. However, the effect of airline alliances on this important dimension of service quality has received almost no attention in the literature. This paper fills this gap by providing such an analysis in a model where flight frequency affects schedule delay and connecting layover time. While an alliance raises service quality when layover time has zero cost, the reverse occurs when layover time is costly. The source of this surprising result is that costly layovers eliminate the additive structure of the full trip price, which consists of the sum of the subfares plus the weighted sum of the reciprocal flight frequencies when layover cost is zero. The paper also shows that nonaligned carriers adjust frequencies to suit passenger preferences in business and leisure markets, while an alliance is less responsive to such preference differences. With hub-airport congestion, greater internalization by allied carriers tends to reduce frequency, but this force is not enough to overturn the positive alliance effect in the low-cost layover case.