Analytical Models of Traditional versus Virtual Code-share Partnerships In the Airline Industry

摘要

This paper develops a theoretical model to investigate welfare impacts of traditional versus virtual code-sharing decisions under different demand and cost specifications. Through code-sharing, partner firms merge their computerized reservation systems and benefit from their expanded networks and schedule frequency without operating additional aircraft, gaining exposure in markets where they do not operate directly but participate via display of their flight numbers. As a result, airlines are able to make use of hub-and-spoke systems to generate greater passenger volumes, resulting in the lower marginal operating cost due to economies of traffic density. A traditional code-sharing itinerary involves the combination of the networks of two different operating carriers to create a connecting flight, feeding traffic to each other. Virtual code-sharing differs in that there is only a single operating carrier and the marketing carrier differs from the operating carrier. Even though under virtual code-sharing, the marketing carrier does not receive any operating revenue other than a nominal commission, it benefits from a more frequent flight schedule due to its larger virtual network provided by the operating carrier. Our model predicts that under different market conditions, the welfare properties of these two types of partnerships are different too.