As the world economy speeding up its globalization, airline alliance emerged as a new trend in the air transport industry since 1980s, According to experts, in the future airline competition will enter a new stage and a few global airline alliances will monopolize the whole market. But so far the economic reasons for airline alliance formation is still a difficult question. To explain airline alliance, the present studies have focused on the production cost saving that is resulted from the economies of scale, increased traffic density, and economies of scope. The paper thinks that, since air transport industry is a network industry, study on airline alliance must consider its network economic characters. In other words, to supply an integrated air service, air transport industry can adopt market governance, hierarchy′s governance, or hybrid governance. Why does the air transport industry tend to go airline alliance? The neoclassical economy cannot explain the airline alliance adequately. The paper studies the economic reasons for airline alliance formation from the perspective of economics. This paper emphasizes that airline alliance is not only due to the production cost saving, but also due to the transaction cost saving. In addition, the paper also studies the policies and produces suggestions in order to develop China′s airline alliance. The paper focuses on and concludes as the following: 1 Analysis of the economies of network about airline alliance. The integrated air service product is space displacement from the original airport to the destination airport. It requests an efficient, integrated air service in the air passage traffic. Airline alliance intends to supply the integrated air service, and realize the economies of network. After airlines allied, the traffic routes network is enlarged, and the size increased. As the size increases, the traffic density increases too. So airline alliance can take advantage of the economies of traffic density, and economies of size, that is to say, take advantage
