Pricing Effects of Airline Cooperation on the Intra-African Air Routes

There has been considerable research on cooperative agreements in the airline industry, but little effort has been spent on underdeveloped regions like Africa. In our empirical work, we estimate the direct and indirect impact of code sharing on airfares in the African international connecting routes between 2017 and 2019. The main objective of this paper is to investigate whether cooperation helps to internalize double marginalization, and results in lower fares. Moreover, we check whether the effect of the introduction of code sharing percolates to airfares of non-CS itineraries on the same route where CS is adopted. Our main results show that the activation of a CS agreement generates a strong reduction of airfares equal to about -18%. The evidence regarding the CS spillover effect is mixed: in connecting interline itineraries we observe that, ceteris paribus, when code sharing is introduced on a route, non-CS airlines react by reducing their price of about 10%. In online or direct itineraries airlines seem not to react to CS introduction and this evidence suggests that they do not perceive CS products as a threat. Our findings support the idea that airline cooperation can play a role in the growth of the African aviation market.