The Economics of Code Sharing Agreements
The airline industry is one of the most competitive industry in the entire world. A large number of incumbents in this industry are making losses. This is primarily because of their lack of efficiency. Since success in the airline industry is solely based on efficiency, many companies have explored unconventional options in order to increase their profitability. One such option is a code-sharing agreement between airlines.
In this article, we will understand what code-sharing agreements really are and how they provide benefits to both the consumer and to the airlines involved.
What are Code Sharing Agreements?
Code sharing agreements are used extensively in the airline industry. In the aviation industry, the term code refers to the two-digit XX which is used as a prefix in flight numbers. For instance, flight no UA123 is a United Airlines flight. The code UA helps identify the airline involved. These codes are given by IATA which is an international travel and tourism body.
A code-sharing arrangement therefore refers to a situation when an airline is sharing its code with another. In simpler words, this means that if United Airlines shares its code UA with Emirates, then such an arrangement will be called code sharing. The flight will actually be operated by Emirates. However, for marketing and sales purposes, the flight will be addressed with the prefix UA.
In such an arrangement, the responsibility of marketing the flights lies with one of the airlines called the marketing partner. At the same time, the other airline is 100% responsible for operating the flight and hence they are called the operating partner.
Types of Code Sharing Arrangements
There are many types of code-sharing arrangements which are common in the airline industry. Some of these arrangements have been listed below.
Parallel Operation: A parallel code-sharing arrangement is an operation between two airlines that fly the same route. For instance, if both United Airlines and Delta Airlines fly from New York to Miami, a code-sharing arrangement between them may be called a parallel operation. This is because this code sharing runs in parallel to their own operations. Simply put in such a situation, the airlines will use each others codes as well as their own.
Connecting Operation: A connecting operation is an arrangement under which an airline has a code-sharing arrangement with another airline which does not operate on the same sector but provides connections to other flights. For instance, British Airways sells tickets for London to Chicago. However, the entire flight is not operated by them. In most cases, British Airways carries passengers from London to New York. From New York, a connecting partner takes passengers to Chicago.
The difference between a codeshare agreement and a traditional connecting flight is the way it is marketed. A traditional connecting flight will show two carriers when the passenger is booking the ticket. On the other hand, code sharing specifies one carrier and mentions the other in the fine print. Many times customers dont even realize that they have purchased code sharing tickets.
Unilateral Operation: A unilateral operation is where one airline is not involved in the operations in any way. This means that the airline is not flying that particular route either directly or via a connection. Here, one airline tries to leverage the brand of another in order to get passengers to fly with them.
Advantages of Code Sharing
Disadvantages of Code Sharing
Authorship/Referencing - About the Author(s)
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