Code Sharing
No, don't worry, this isn't another post about open source, but about the practice of "code sharing" between airlines, the topic of a recent New York Times op-ed by former American Airlines honcho Bob Crandall. The way it works, as I understand it, is that you book a flight with some airline, but some portion of the journey actually occurs on a plane run by a different airline. That flight will be co-branded (hence the "code sharing") by both—Lufthansa 210 and United 428, in the listings. Mr. Crandall offers some perplexing logic, according to which this is bad news for the U.S. airline industry.
The one intelligible argument we get is that this amounts to something approaching fraud: you think you're flying on Chic Air and get the equivalent of Budget Rent-a-Plane instead, or some such thing. But I don't see how there's a special code sharing problem here. If an airline promises certain amenities and then doesn't deliver them, that's a scam regardless of who's running the flight. That aside, I'm having trouble distinguishing this from the case in which, instead of "code sharing," the airline just leases a plane for a few months. In other words, Crandall seems to be arguing that it's bad to have this co-branding arrangement, but would be just dandy to buy the precise same plane and do the run yourself.
It sounds as though all code sharing does is eliminate the need to have redundant flights with half-empty planes (or numerous smaller planes), and I can't for the life of me figure out why that's bad. If there's a competitive problem created here, it's not that the government allows this, but that it picks and chooses which particular arrangements it's going to allow. The solution to that, though, would be more leeway for co-branding, not less.
Crandall points out that one effect of these alliances is to reduce the proportion of trans-Atlantic flights flown by American carriers. But… why is this a problem? If it's cheaper to outsource some leg of a flight to Lufthansa, or whomever, why exactly are we supposed to think there's some intrinsic virtue to having a plane owned by a domestic company do it? These arrangements are supposed to create less "competition," which I suppose is true in the sense that any time a firm outsources some aspect of its production to another company, they're not running their own (by definition competing) subsidiary. So if a car manufacturer buys radios from an electronics company, instead of making their own, that necessarily means less competition in stereo manufacturing. And anything short of yeoman farmer self-sufficiency limits agricultural competition, too… Anyway, the incentive to "do it yourself" when there's actually some prospect of being competitive (i.e. running the route at a lower cost) remains. So, am I missing something, or is this just warmed over mercantilism?
