Review of Industrial Organization 16: 367–383, 2000.
© 2000 Kluwer Academic Publishers. Printed in the Netherlands.
An Empirical Analysis of Global Airline Alliances:
Cases in North Atlantic Markets
JONG-HUN PARK and ANMING ZHANG
Department of Economics and Finance, Faculty of Business, City University of Hong Kong, 83 Tat
Chee Avenue, Kowloon, Hong Kong
Abstract. This paper empirically investigates the effects on air fares, passenger volume, and con-
sumer surplus of four major alliances in North Atlantic aviation markets. The four alliances are
British Airways/USAir, Delta/Sabena/Swissair, KLM/Northwest, and Lufthansa/United Airlines. We
ﬁnd that equilibrium passenger volume increased by some 36,000 passengers annually and equilib-
rium air fares decreased by an average of $41 on the routes served by the allying carriers, and that
consumers were generally better off due to the alliances.
Key words: International airline alliances, market outcome, North Atlantic markets, welfare.
JEL Classiﬁcation: L13, L93, L40, L51.
The amount of international air travel has grown rapidly in recent years. Total pas-
senger trafﬁc between the U.S. and the rest of the world increased to 92.6 million
passengers in 1993 from 39.5 million in 1980. The International Air Transport
Association (IATA) estimated that this number would increase to 226 million by
2010. Despite recent growth, however, the international aviation market remains
heavily regulated. Under a framework established by most countries gathered at
the Chicago Conference in 1944, international air travel is largely governed by
restrictive bilateral air service agreements. In addition, there are legal, political,
and institutional constraints on mergers and takeovers between airlines of different
countries. Taken together, these two observations suggest that it would be almost
We thank Jim Brander, Jan Brueckner, Ken Button, Ira Horowitz, Tae Oum, Tom Ross, Ken
Small, and an anonymous referee for their very helpful comments and encouragement. We also thank
seminar participants at the University of British Columbia, City University of Hong Kong, Hong
Kong University of Science and Technology, the 8th World Conference on Transportation Research,
the 1998 American Economic Association meetings, and the 25th Annual Conference of European
Association for Research in Industrial Economics for their helpful comments. Financial support
from the Social Sciences and Humanities Research Council of Canada, the Research Grant Council
of Hong Kong, and the Strategic Research Grant of City University of Hong Kong is gratefully