Frequent Flier Program Partnerships, Substitutability, and Airlines' Profit
14 Pages Posted: 3 Nov 2005
Date Written: October 2005
This paper offers a first model of parallel frequent flier programs partnerships, rather typical for the US domestic market. We model these partnerships as arrangements which make carriers' services more substitutable, in a setup where consumers value frequency and exhibit varying degrees of brand loyalty. We show that joining frequent flier programs can increase profits of partner airlines, even where no explicit coordination between them is allowed.
Keywords: Frequent Flier Programs, Airline Consolidation, Substitutability
JEL Classification: D43, D49, L13, L29, L40, L93
Suggested Citation: Suggested Citation