RobertS975
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The Economics Of Codeshares

Thu Jul 25, 2013 1:33 am

I understand the concept of joint ventures where all expenses and revenues are shared between the participants of the JV, ie. the relationship on the TATL routes between AF/KL/AZ and DL. But what models are there for codeshares where there is no apparent JV. Does the ticketing airline get a small commission compared to the airline that is actually flying the route? How does it work?

For example, just to name one, when I buy a DL stock ticket for an AS flight between BOS and SEA, how is the money divided?
 
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LAXintl
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RE: The Economics Of Codeshares

Thu Jul 25, 2013 2:46 am

You are exactly correct. In simplistic terms yes they earn a commission for selling a seat on codeshare partners flight.

There are certainly differences between how codeshares can be structured, such as offering preferential fares, prorates, inventory, or seat capacity etc, but yes thinking of one airline being essentially a travel agency selling ticket on another carrier in return for some fee is a good way to think of it.
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[email protected]
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RE: The Economics Of Codeshares

Thu Jul 25, 2013 5:42 am

I would be also keen to know, but especially if you have a routing where only the secondary leg is a codeshare
e.g. SFO (UA) - FRA (LH) - VCE, guess they must have a quite special tariff for the 2nd leg... and how interesting it would be for a carrier to sell that FRA - VCE as a code share connect to an int. flight....
 
TWA902fly
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RE: The Economics Of Codeshares

Thu Jul 25, 2013 7:04 am

Interesting question, I'd like to know more about this as well. Is the share different say on a DL/CZ codeshare LAX-CAN, depending on if it was ticketed as a DL flight, or as a CZ flight? Or does this not matter?

'902
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nonrev
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RE: The Economics Of Codeshares

Thu Jul 25, 2013 7:22 am

Most airlines have what is known as an SPA (special prorate agreement) in place with each other, whereby the amount is pre-agreed for selling a sector, in a certain booking class, on a certain route. Of course it is possible to sell (almost) anyone's flights on your paper. Where there is no SPA in place, the whole cost of that sector, per published fares is paid to the operating carrier.
 
mozart
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RE: The Economics Of Codeshares

Thu Jul 25, 2013 12:19 pm

A VERY interesting topic.

Even JVs aren't that obvious. What does "all cost and revenues are shared" mean?

Specifically:

1. Say there is a JV of Delta, Air France, KLM and Alitalia for the North Atlantic route. Do the four parties share the entire revenue from all North Atlantic routes flown by these airlines (i.e. Alitalia would also get a share of the profit earned on Chicago-Paris flown by AF)? Or does it happen on a route-by-route basis (i.e. Alitalia would only get money for flights flown by itself and Delta between Italy and the US?)

2. How do they allocate the profit shares? Surely they won't split them by number of participants. In the DL/AFKL/AZ example I cannot imagine Alitalia getting a third of the cake. So what do they base shares of the cake on?

3. Since planes belong to an airline and not the JV, what is the legal and accounting relationship? Is it that JVs have a schedule of flights that they market and then they "rent" the planes from the operating airlines whereby the airline bills the JV the cost of operating that aircraft?

4. I have seen JV flights (for instance for the CDG-BEY route, a JV between Air France and MEA) where during the booking process some seats could only be allocated when booking through the AF website, the other seats being available when booked through the ME website. Does that mean that despite the route being a JV every airline has to market "its" contingency of seats? What happens if one fills the contingency but not the other, they still share the profits?

5. At check-in, are all seats opened to passengers of any of the marketing JV airlines? For instance, can AF-ticketed passengers get a seat that during the booking process was accessible only to ME passengers?
 
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LAXintl
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RE: The Economics Of Codeshares

Thu Jul 25, 2013 3:08 pm

Quoting [email protected] (Reply 2):

I would be also keen to know, but especially if you have a routing where only the secondary leg is a codeshare
e.g. SFO (UA) - FRA (LH) - VCE, guess they must have a quite special tariff for the 2nd leg... and how interesting it would be for a carrier to sell that FRA - VCE as a code share connect to an int. flight....

Well in your case UA/LH have a Atlantic JV agreement that would cover the distribution, but in general its not very complex when you interline.
Baring any special agreement between airlines, IATA for decades has had guidance on how ticket revenue would be distributed across carriers on multiple segments. Not very hard to do at all.

Quoting mozart (Reply 5):
Even JVs aren't that obvious. What does "all cost and revenues are shared" mean?

JV's are much more complex and governed by terms of individual agreements.

A much deeper topic and beyond this thread.
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Viscount724
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RE: The Economics Of Codeshares

Thu Jul 25, 2013 9:38 pm

Quoting nonrev (Reply 4):
Where there is no SPA in place, the whole cost of that sector, per published fares is paid to the operating carrier.

The ticketing carrier also gets an interline service charge, unless that's been eliminated recently. IATA administers the prorate rules that apply in the absence of special prorate agreements which probably now cover most interline traffic.
 
avek00
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RE: The Economics Of Codeshares

Thu Jul 25, 2013 10:00 pm

Quoting RobertS975 (Thread starter):
But what models are there for codeshares where there is no apparent JV.

Under such circumstances, the ticketing carrier will retain a nominal administrative fee (which varies widely across the industry, either as a set amount in the range of about $20-100, or as a percentage of the fare of the coupons involved), while the operating carrier receives the rest of the value of the ticket coupons.

As you might surmise, this setup makes codesharing a tricky exercise for airlines, especially in light of the fact that airlines without ATI are generally prohibited from coordinating on pricing.
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avek00
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RE: The Economics Of Codeshares

Thu Jul 25, 2013 10:17 pm

Quoting mozart (Reply 5):
Even JVs aren't that obvious.

JV arrangements are, at core, simply contracts. Thus, they can be crafted in any form the participants desire and the regulators allow. That said, there are two basic financial approaches used for JVs in international civil aviation:

1. (More common) Revenues from all applicable (e.g., TATL) flying are pooled, and then divided amongst the partners based on its share of flying as part of the JV (e.g., a carrier that offered 10% of the ASMs covered by the JV gets 10% of the JV revenue).

2. (Less common) The JV partners agree in advance to fixed percentage splits of the pooled revenues realized from the JV.
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RobertS975
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RE: The Economics Of Codeshares

Fri Jul 26, 2013 2:07 am

If I buy a codeshare on DL for a flight from BOS to SEA on the AS nonstops, a nonrefundable fare bucket, and then cancel, my residual value credit remains with DL, not AS. And the change fee, currently at $200, belongs to...?

I think that the original codeshares meant that the codeshare airline not flying bought up a certain percentage of seats and tried to market them to their customers. They may have had some risk if they did not sell.

[Edited 2013-07-25 19:08:51]
 
avek00
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RE: The Economics Of Codeshares

Fri Jul 26, 2013 3:30 am

Quoting RobertS975 (Reply 10):

If I buy a codeshare on DL for a flight from BOS to SEA on the AS nonstops, a nonrefundable fare bucket, and then cancel, my residual value credit remains with DL, not AS. And the change fee, currently at $200, belongs to...?

Belongs to Delta.
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