Service Quality’s Effects on the Selection of a Partner Airline in the Formation of Airline Alliances

Airline alliance has become a prominent feature in the competitive airline industry. However, most research in this field focuses on the revenue management or pricing mechanism, rather than the initial intent of an airline alliance: providing a network of connectivity and convenience for international passengers and convenient marketing branding to facilitate travelers making inter-airline codeshare connections within countries. The main concern in this paper is how an airline's service quality might affect the selection of its partner airline during the formation of airline alliances. The main contribution is to show the strategic effects of the service quality on the proposed complementary airline alliances following a three-stage analysis framework, where the pre-alliance industry of the potential alliance members can either be monopoly or duopoly. We find that an airline will cooperate with the one which has the same service quality level if the pre-alliance service quality distribution of the airlines in the whole market differs greatly, while it tends to choose the one with similar (either higher or lower) service quality level as its partner if the distribution is approximately uniform.