This paper analyzes factors that determine whether alliance carriers choose to remain in or leave a code-share agreement on individual routes. Different types of code-sharing are considered: traditional code-shared routes, virtual code-shared routes and those routes with both traditional and virtual code-sharing. Empirical results show that factors affecting alliance firms’ code-sharing decisions significantly differ for virtual versus traditional code-share agreements. Virtual code-sharing tends to take place in less dense markets and is not significantly affected by yields. This provides tentative support for the Ito and Lee (2005) argument that virtual code-sharing provides a mechanism by which carriers practice price discrimination (for instance, filling unoccupied seats in less dense markets). In contrast traditional code-sharing is found to be more likely to occur in dense markets and higher yields increase the probability of such arrangements. Thus, traditional code-sharing seems to be used to achieve the networking economics and cost savings derived from dense markets and thus appears to be more effective as an instrument to introduce competition into a market.
