These changes include the substantial decline in the

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Unformatted text preview: hanges include the substantial decline in the number of major carriers, the intensified reorganization of routes into hub-and-spoke networks and, still taking place, the formation of strategic alliances among international carriers.1 The present paper develops a simple model of a network structure where passengers in a given city-pair market use two carriers connecting through a hub airport. Passengers can fly via different hubs to reach their destination. We examine whether airlines that employ the same hub have an incentive to create an alliance, analyze the effects on carriers outside the alliance and study how fares are affected. Airline alliances are designed to offer passengers a seamless service in order to minimize some of the inconveniences of interline multicarrier trips. They allow the carriers to rely on a partner to provide flight to destinations where they lack route authority. Cooperation adopts several forms -which in many instances come close to effective merger- and includes code-sharing agreements, the coordination of flight schedules and the joint use of frequent flyer programs. To illus...
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