On February 22nd, 2012 Prof. Sandra Transchel (KLU) will give her Inaugural lecture on the topic "Collaborators or competitors: codeshare agreements in the airline industry". The lecture is open to the public. Space is limited, so please register ahead of time.
Codeshare agreements are commercial agreements (contracts) between two or more airlines that allow for a flight which is operated by one airline to be marketed also by other airlines. Customers observe these agreements as flights that are operated under multiple flight numbers (codes). In practice, several types of codeshare agreements can be observed:
- unilateral agreements where only one airline puts its code on a leg operated by another airline, however, not necessarily to connect to its own network,
- “behind and beyond” agreements where an airline puts its code on legs which are operated by another airline to connect with its own flight network, and
- parallel agreements where two airlines operate flights on the same leg and each airline gives its code to the other airline’s operated flight.
Even though airlines are cooperative partners in these codeshare agreements, they are still individual companies that maximize their own revenues. The primary problem in codeshare agreement is how revenue is split (or, indirectly transfer prices are coordinated) between the marketing airline (the airline that sells the ticket) and the operating airline (the airline that operates the flight). The most common form to specify how to split revenues are special prorate agreements (SPA’s) normally encompassing very simple splitting rules which are negotiated and fixed far in advance.
In my inaugural lecture, I will highlight some fundamental problems arising with codeshare agreements between airlines. I will present a dynamic pricing problem of two airlines codesharing parallel flights. Assuming that each airline will adjust her pricing decision in response to the partner airlines pricing decision, the research problem is to find an equilibrium (in academia called Nash equilibrium) where no airline has an incentive to deviate from their decision. To illustrate the impact of codeshare agreements, I will present results from an equilibrium analysis of two revenue-sharing contracts, a fixed and a dynamic (price-based) transfer pricing contract and illustrate the gap to the first-best solution when both airlines cooperate perfectly.
To register please send an email to: beate.linnenberg(at)the-klu.org
The Lecture Series
The KLU Lecture Series is a forum for scientists and practitioners to talk and discuss on state-of-the art topics related loosely to logistics and entrepreneurship.