Code-sharing,Airline Competition And Competition Policy

Airlines’ code-sharing flights are common products which can be provided for passengers.A Passenger who take a code-sharing flight often finds that his ticket he has purchased is from an airline,while the actual flight he has taken is from another airline.A code-sharing is an agreement between airlines in which one airline is the operating carrier which allows one or more airlines as its marketing partner to sell seats on the flights it operates.Code-sharing was initially achieved by airlines which mutually utilize route resources to reduce operating costs.However,it may also harm market competition in spite of reducing costs.Code-sharing is deeply and abundantly researched abroad,while the research on code-share flights in our country is less.As a competitive behavior of airlines,what impact does code-sharing have on the competition in China’s airline market?Is there an impact on flight prices and consumer welfare?Does it have an impact on business performance?This paper attempts to explore these questions through theoretical and empirical analysis.Under the background of our country’s accelerating construction of a transportation power,China has continued to promote the construction of a modern transportation system,and the supply of airline infrastructure has been continuously improved.Code-sharing,as a way for airlines to unite their route networks,realizes full utilization of route resources.However,for the airline market,code-sharing also increases the number of airline competitors in the route,which may cause changes in market power and damage competition.The "14th Five-Year" civil aviation development plan pointed out that the decisive role of the market in resource allocation should be brought into play,and the improvement of the civil aviation transportation price mechanism should be accelerated.As China accelerates the market-oriented reform of domestic air transportation prices,the civil aviation transportation market has gradually established a market-determined price mechanism.Air transportation companies set prices independently in accordance with the law,and air transportation companies must not collude with each other and manipulate market prices.However,when airlines reach a code-sharing agreement,it requires continuous coordination and communication among the partner airlines,which may promote openness or tacit collusion.Since the reform of separation between government and enterprises in 2002,China’s civil aviation industry has ushered in market-oriented reforms,achieved deregulation,and introduced moderate competition.Subsequently,a number of airlines carried out horizontal mergers and reorganizations in the industry,the hub of the route network,and produced a variety of competitive behaviors such as differential pricing,code-sharing,airline alliances,and frequent flyer programs.From the perspective of economics,for airlines,on the one hand,both parties of code-sharing can improve marketing efficiency,increase passenger load factor and reduce operating costs by utilizing the route resources of both parties.On the other hand,code-sharing prompts airlines to coordinate pricing,or to adjust their own competitive strategies to those of other competitors.As the structure of my country’s civil aviation market has gradually changed from a monopolistic competition market to an oligopolistic market,the market price can be reached by oligopolistic companies through agreement or tacit understanding.Code-sharing may be suspected of monopolistic agreements,causing damage to market competition.For consumers,on the one hand,code-sharing enriches consumers’ flight choices and improves the quality of flight products.On the other hand,code-sharing prompts airlines to coordinate price or output,reducing consumer welfare.Based on the theoretical and empirical analysis of code sharing on market competition,this paper draws the following conclusions:Conclusion 1:Firstly,in the group of two airlines on a specific route,the price increases due to the code-sharing agreement of both parties,but the price decreases as their number of code-share flights grow.That is,the price increases by 28%when both parties achieve a code-sharing agreement,but the code-sharing price decreases by 0.5%as both airline in the group increase their number code-sharing flight.Secondly,within a given route,code-sharing flights of any two airline as a pair tend to have less price volatility than non-code-sharing ones.However,the more code-sharing flights the both airlines have,the more violently their prices fluctuate.Thirdly,on a given route,the price difference between the two airlines in a pairs decreases as the number of code-sharing flights increases compared to non-code-sharing ones.Conclusion 2:Firstly,code-sharing airlines can increase all their fares(including the code sharing and non-code sharing ones)in all routes on which they has reached code-sharing agreement with other airlines(because of the round-table effect).Flights from airlines of higher market share which have reached code-sharing agreements with other airlines tend to set 37%higher price than those not.Secondly,the marketing or operating carrier that have reached code-sharing raise their ticket prices(due to a double marginal effect),that is,the marketing or operating carriers of code-sharing agreement raise their ticket prices by about 24%compared with non-code-sharing flights.Thirdly,in the vertical relationship of code-sharing,the marketing airline raises their price(due to the double marginal effect),that is,the marketing carriers set higher price than operating carriers and the operating carrier’s price is about 27%lower than the flight price of other airlines.Conclusion 3:Firstly,the revenue of airlines get higher as airlines increase their number of code-sharing partners.One more code-sharing partner an airline increase could raise revenue by 4%.Secondly,as airlines can reach code sharing agreements through subsidiaries or associates,the increase in the number of subsidiaries and associates of airlines can increase its revenue,and one more subsidiary or associate can increase its operating revenue by 7%.Thirdly,joining international airline alliances can not bring airlines more revenue.Fourthly,airlines’ code-sharing agreement with airlines which are not their subsidiaries and associates may increase their benefits,that is,the reason that airlines’ more code-sharing partners increase their revenue is the growth in the number of their subsidiaries and associates,but the effect by code-sharing with airlines’ subsidiaries and associates on their revenue remains to be determined.The research’s contribution of this paper is mainly in the following aspects:Firstly,this paper adds the relevant research of code-sharing in China’s civil aviation market,and finds that the influence of code-sharing on the competition of civil airline market,and analyzes the competitive mechanism of code-sharing.Secondly,this paper adopts the fare data of 20 popular routes to analyze the code-sharing empirically,which fills the gap in the research of our code-sharing empirically.Thirdly,from the perspective of competition policy,this paper analyzes the anti-competitive effect of code sharing in China’s civil airline market,and makes suggestions for the anti-monopoly authorities to build the competition policy implementation mechanism in each part of the civil airline market.Based on the theory of SCP framework,by the analysis path from market structure to market behavior and market performance,this paper researches the influence of price,pricing model and corporate performance in order to analyse the effect on market competition by code-sharing,and deeply studies the competition mechanism in the empirical and theoretical ways.The study of antitrust economics focuses on economic efficiency and determines the impact of changes in competitive behavior and market power on competition.This paper emphasizes the study of the anti-competitive effect in the civil aviation market and adopts big data analysis to identify the anti-competitive effect in the civil aviation market.From the point of competition policy,this paper provides policy suggestions for anti-monopoly authorities by standardizing the behaviors of hindering and restricting competition in civil aviation market.