The effects of airline alliances on markets and economic welfare

Recently, major airlines have been extending their service networks via strategic alliances with other airlines as a means of forming global service networks. This theoretical analysis examines the effects on firms' outputs and profits, air fare, and economic welfare of two types of airline alliances: complementary and parallel alliances. It is shown that the two alliances have different effects on output and economic welfare. The complementary alliance is likely to increase economic welfare, while the parallel alliance to decrease it. We also find conditions under which each type of alliance generates welfare improvement. Some policy implications are derived based on these findings.