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Difference Between A Franchise & A Subsidary?  
User currently offline8herveg From United Kingdom, joined Aug 2006, 1182 posts, RR: 0
Posted (7 years 9 months 2 days 1 hour ago) and read 13018 times:

Could someone please explain to me, with examples, the difference between an airline franchise, and an airline subsidary.

Who makes the decisions for the airline in each case?

6 replies: All unread, jump to last
 
User currently offlineGoldorak From France, joined Sep 2006, 1841 posts, RR: 4
Reply 1, posted (7 years 9 months 2 days ago) and read 12999 times:

a subsidiary is partly or totally owned by a parent company while a franchise is an agreement between 2 airlines in which one is operating some selected routes on behalf of the other one. Generally the airline operating a route on a franchise agreement wears the livery of the contractant airline on its A/C. Such a franchise agreement can be made either with a subsidiary or with another airline without capitalistic links.
Examples : Regional and CityJet are both subsidiaries of AF and operates some AF routes under a franchise agreement. Regional and CityJets A/C wear AF livery. AF had also in the past franchise agreement with Jersey European (which became later British European and now FlyBE) and Gill Airways (now disappeared). Neither of these 2 airlines were subs of AF but they operated some routes between CDG and UK (for BE) and CDG-HEL (for Gill) with A/C wearing AF livery. And they also operated some other routes not for AF, with their own A/C and liveries.

In case of a franchise agreement, the traffic rights/slots remain under the property of the contractant airline and are not in hands of the operating airline.


User currently offlineDavid_itl From United Kingdom, joined Jun 2001, 7370 posts, RR: 14
Reply 2, posted (7 years 9 months 1 day 23 hours ago) and read 12989 times:
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The difference as explained in simplistic BA terms:
Franchise = profitable airline and able to run routes out of the regions so must be bought as too many people would be not routing through LHR.
Subsidiary = former franchise airline bought so that the thinner margins those franchises obtained would be wiped out by having BA's cost structure helpfully spread onto them thereby turning it into a loss-making part of the company and ready to be dumped at the earliest opportunity.


User currently onlineVV701 From United Kingdom, joined Aug 2005, 7461 posts, RR: 17
Reply 3, posted (7 years 9 months 1 day 21 hours ago) and read 12956 times:

Quoting Goldorak (Reply 1):
a subsidiary is partly or totally owned by a parent company while a franchise is an agreement between 2 airlines in which one is operating some selected routes on behalf of the other one.

I think that a subsidiary has to be wholly owned. Otherwise, for example VS, 49 per cent owned by SQ, would be an SQ subsidiary while BD 30 per cent less one share owned by LH and 20 per cent owned by SK would be a subsidiary of both LH and SK. Similarly IB, ten per cent owned by BA, would be a BA subsidiary which it is not. On the other hand BA Connect, currently 100 per cent owned by BA is a BA subsidiary.

At the same time BA has 5 year franchise (renewable by joint agreement) with GB Airways (GT), BMED (KJ) Loganair (excepting its islands Trilander services), Sun-Air of Scandinavia and Comair of South Africa. I believe it does have a financial stake in Comair but owns no part of its other franchise partners.

The franchise arrangement has two possible reasons. The BA arrangement with Comair effectively creates a BA hub at JNB (and, perhaps, CPT) with Comair feeding traffic onto BA's flights to LHR. (It also enabled BA to discontinue some of its less profitable services in southern Africa like the JNB-DUR extension of one of its LHR-JNB flights while giving its passengers greater choice through increased frequencies.)

The BA arrangement with GB Airways is less about feeding traffic into LHR and LGW and more about offering its regular customers flights to holiday destinations that the higher BA cost base would preclude them offering themselves. So quite a few GB Airways BA coded flights are between airports when there is no actual BA flight to either of those airports. Clearly in these cases no feed is possible.

These renewable franchise agreements require BA's franchise partners to operate a service as specified by BA, to operate their aircraft in BA livery and to dress their staff in BA uniforms. A major benefit to the franchise partner is that their services are listed in BA's worldwide booking system giving them access to potential customers that they would not otherwise have.


User currently offlineGoldorak From France, joined Sep 2006, 1841 posts, RR: 4
Reply 4, posted (7 years 9 months 1 day 14 hours ago) and read 12913 times:

Quoting VV701 (Reply 3):
I think that a subsidiary has to be wholly owned

not necessarily I think. It depends if you consolidate the affiliate in the accounts of the mother company. And generally you do this only if you have a majority of the stocks (but not only 100%)


User currently offlineUA777300ER From Belgium, joined Jun 2006, 96 posts, RR: 0
Reply 5, posted (7 years 9 months 1 day 14 hours ago) and read 12900 times:

Quoting Goldorak (Reply 4):
not necessarily I think. It depends if you consolidate the affiliate in the accounts of the mother company. And generally you do this only if you have a majority of the stocks (but not only 100%)

I agree with you. You often hear the term "...., which is a fully owned subsidiary of ...". So this indicates that subsidiaries do not have to be fully owned.


User currently offlineZkpilot From New Zealand, joined Mar 2006, 4817 posts, RR: 9
Reply 6, posted (7 years 9 months 1 day 12 hours ago) and read 12876 times:

Another example would be an airline franchise.. which operates exactly like the airline does (perhaps with different pay conditions etc),
and airline subsidary could be like a "link" airline, where it is owned by the main airline and has its name (often with the link airline name too) but operates its own way with only token references to the main airline.



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