MUTUAL FORBEARANCE: AN EMPIRICAL STUDY OF AIRLINES AND THEIR STRATEGY FOR INTERCONTINENTAL FLIGHTS

Abstract

In this paper, I investigate the relationship between the level of multimarket contact experienced by an airline in a destination and the likelihood that the airline flies to that destination. I use data on intercontinental destinations of 59 airlines from three alliances during the year 2013. These airlines are classified into six groups based on their hub’s location, and airlines of the same group are treated as competitors. The results show an inverted U-shaped relationship between multimarket contact and the likelihood of an airline’s presence in a destination. There is also evidence that airlines are more likely to fly to destinations that serve as hubs of their alliance members. Furthermore, the inverted U-shaped relationship is amplified by the number of regional competitors who are present in the focal destination and belong to the same alliance as the focal airline.