International Aviation

Airline Alliances Produce Benefits, but Effect on Competition Is Uncertain Gao ID: RCED-95-99 April 6, 1995

For U.S. airlines, growth in the international sector in recent years has far outpaced domestic growth. Between 1987 and 1993, the number of passengers traveling on U.S. airlines between the United States and foreign destinations increased by 47 percent, while domestic traffic increased by only six percent. The airlines' ability to respond to this demand is limited, however, by intergovernmental restrictions and cost constraints. As a result, the airlines have increasingly entered into alliances with foreign airlines, rather than starting new service to additional foreign cities. Likewise, foreign carriers have entered into alliances with U.S. airlines to increase their access to the U.S. market. This report (1) examines the effects of marketing alliances between U.S. and foreign airlines on airlines' traffic flows and revenues and on consumers and (2) identifies key issues concerning such alliances that need to be addressed by the Transportation Department.

GAO found that: (1) alliances between U.S and foreign airlines have increased ridership and revenues for partners; (2) the impact of an alliance on other U.S. airlines depends on the alliance's geographic scope, other airlines' competitive response, and the extent to which competition between that alliance and the other airlines stimulates new traffic; (3) consumers benefit from the conveniences that alliances provide, although it is unclear how alliances will affect fares; (4) DOT has not required airlines to report sufficient data to monitor the alliances' effects on competition; (5) DOT has not determined whether antitrust immunity should be available for alliances in markets that allow for increased access for U.S. airlines; and (6) DOT has not limited code sharing, or multiple listings of the same flight, which gives airlines in an alliance a competitive advantage.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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