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 language | English |
|---|---|
| Pages (from-to) | 251-272 |
| Number of pages | 22 |
| Journal | International Journal of Industrial Organization |
| Volume | 62 |
| Early online date | 2 Mar 2018 |
| DOIs | |
| Publication status | Published - 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.
| Funders | Funder number |
|---|---|
| Tinbergen Institute |
Keywords
- Airline industry
- Brand loyalty
- Extensive margin
- Frequent flier programs
- Geographic regression discontinuity
- Intensive margin
