Airline loyalty (programs) across borders: A geographic discontinuity approach

Gerben de Jong*, Christiaan Behrens, Jos van Ommeren

*Corresponding author for this work

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Abstract

We analyze brand loyalty advantages of national airlines in their domestic countries using geocoded data from a major international frequent flier program. We employ a geographic discontinuity design that estimates discontinuities in program activity at the national borders of the program's sponsoring airlines in the Schengen area of Europe. We document that foreign consumers earn about 60% less miles and are 70% less likely to be a program member. Controlling for self-selection, we also find suggestive evidence for higher purchase frequency and transaction size by domestic members. These results imply that national airlines enjoy a large loyalty advantage in their domestic country, and contribute to an explanation as to why international flights by third country carriers are still a small share of the market.

Original languageEnglish
Pages (from-to)251-272
Number of pages22
JournalInternational Journal of Industrial Organization
Volume62
Early online date2 Mar 2018
DOIs
Publication statusPublished - Jan 2019

Funding

We would like to thank an anonymous frequent flier program for providing data. Furthermore, we thank participants of the Barcelona ITEA, Amsterdam GARS, Antwerp ATRS conferences and the VU Eureka seminar for useful comments. We are indebted to the editor, Jan Brueckner, and two anonymous referees for valuable comments on an earlier version of this paper. All remaining errors are our own. Jos van Ommeren is a fellow of the Tinbergen Institute.

FundersFunder number
Tinbergen Institute

    Keywords

    • Airline industry
    • Brand loyalty
    • Extensive margin
    • Frequent flier programs
    • Geographic regression discontinuity
    • Intensive margin

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