Applying TOPSIS and cooperative game theory in airline merging and coalition decisions

Abstract

Nowadays, more and more airlines have adopted various alliance strategies, such as code sharing, equity sharing, merging and acquisition to survive in the rigorously competitive market. To assess the effectiveness of code sharing and merging practices among airlines, we include major factors affecting the decisions of code sharing and merging into our model and propose the formulation and calibration procedures of payoff functions under various airline coalition scenarios. In the case study, we apply TOPSIS to assess the importance of factors in the decision making of code sharing and merging and to create a priority ranking of target airlines in the cooperative games. In conclusion, we found that financial stability and profitability are the top two factors affecting merging decision while profitability is the only concern in the code sharing games. In addition, we found that Taiwan's domestic airlines would gain more profits through merging rather than code sharing while EVA and CAL could be the best target for merging.