An empirical investigation of the relationship between interline cooperation and airline fares in the U.S. domestic airline industry

Interline cooperation is the most basic type of cooperation in the airline industry. Although interline cooperation has limited benefits for producers and customers, this type of cooperation may still result in collusive behavior. In this paper we study the effect of interline cooperation on airline fares by focusing on the cancelled interline agreement between American Airlines and Delta Air Lines. We use a panel data set containing 10,559 unique routes over the period 2013- 2017 and apply a difference-in-difference model in order to test whether ticket prices increased due to less competition and increased collusive behavior in the period after the interline cooperation. We add another dimension by dividing our sample in subsamples based on market structure. We do not find statistical evidence that airline fares changed after the cancelled interline agreement. However, we do find evidence that average airline fares increased on affected routes when looking at monopoly markets alone.