Impact of Airline Alliances on Service Provision

Research Seminars
Academic Areas Marketing
Professor Trichy Krishnan , National University of Singapore
March 18, 2013 | 3:00 PM - 4:30 PM | Monday
AC2MLT, hyderabad, Hyderabad, India
For ISB Community
Abstract : An alliance (or a JV) enables the airlines-in-alliance to cut costs due to the efficiency it brings in (e.g. avoiding flying both the airlines in the same route, enabling partner airlines to serve peak time traffic without increasing their capacity). Some of the savings are passed to the customers resulting in lower fare. Although customers enjoy benefits such as through-ticketing and additional mileage in their loyalty accounts when they fly across multiple cities using the airlines in the alliance network, they also reportedly experience a lower level of service in the “partner” airlines than what they experience in their home airlines. This is because airlines do not expand their service facilities to accommodate additionally the “loyal” customers of partner airlines, and, as a result, tend to compromise on the service they provide to those customers. Using a game theory framework we explore if an equilibrium exists in which the airlines-in-alliance and their customers settle for a lower level of service.