Are Frequent‐Flyer Programs a Cause of the “Hub Premium”?

Mara Lederman

Journal of Economics & Management Strategy, 2008, vol. 17, issue 1, 35-66

Abstract: This paper estimates the relationship between frequent‐flyer programs (FFPs) and fares at hub airports. I exploit the formation of partnerships that allowed members of one airline's FFP to earn that airline's points on flights operated by its partner. If FFPs allow an airline to charge higher fares on routes that depart from its hubs, these partnerships should allow an airline's partner to charge higher fares on routes that depart from these same airports. I find that offering the FFP points of the dominant carrier at an airport does, indeed, lead to higher fares. Combining these estimates with estimates of the “hub premium” suggests that FFPs may account for at least 25% of the “hub premium.”

Date: 2008
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