Worldwide Airline Cooperation: How does it work?

DALLAS — In the early days of commercial aviation at the beginning of the 20th century, the world only saw a few passenger airlines transporting passengers mainly between the biggest capital cities in Europe and the United States.

Of all of them, only a few, such as Avianca (AV), KLM (KL), Qantas (QF), or Aeroflot (SU), have survived history-changing events due to their strong economic models and strategies, but also because of the cooperation and help they provided between them.

In this article, we will explain three different global airline cooperation strategies that have influenced the way the industry has developed over the years.

Codeshare Agreements

A codeshare agreement is a commonly used practice in commercial aviation, where a specific route flown by one carrier is marketed and published by two or more partner airlines and added to their flight schedules.

Even though the flight is operated by only one airline under one “prime flight code,” every other partner assigns its flight number to the route to be able to sell tickets on their websites and travel agencies.

This is a widely used method between carriers that belong to the same airline alliance or group. The objective is to increase the number of tickets sold per flight and offer a wider route network to travelers.

As an illustration, suppose a customer of United Airlines (UA) desires to reserve a flight from Washington (IAD) to Bergen (BGO). In this case, UA would propose a route that includes a layover in Frankfurt (FRA), where the second portion of the journey is operated by its German partner, Lufthansa (LH).

However, even though LH will be the airline flying the FRA-BGO connection, the flight number shown on the ticket will remain UA because that airline and LH signed a codeshare agreement in 2016 for all the LH-operated flights in Europe.

Other airlines, such as Air Canada (AC), also share codes with Lufthansa flight LH874 from Frankfurt to Bergen. In that way, passengers arriving in FRA from all parts of Canada on board AC will have the opportunity to connect to this LH flight and fill the plane.

In a codeshare agreement, the airline responsible for administering the flight (holding the operational permissions, airport slots, and organizing the ground handling) is called the “administrating carrier.”

It is important to note that this should not be mistaken for the term "operating carrier," as there are instances where a flight may be operated with a leased aircraft from a subcontractor. This is the case of a HiFly Malta (3L) aircraft flying this FRA-BGO route, where LH stays as the “administrating carrier” even though it is not technically the airline operating the flight.

The flight numbers that airlines reserve for codeshare agreements are typically very different from their standard codes, as they are only used for internal operations. While the “prime flight code” of the LH route is LH874, similar to the rest of the airline’s flight numbers, UA and AC announce this connection on their websites as UA9112 and AC9681.

Airline Alliances

An airline alliance is also an arrangement between two or more airlines, but this time to cooperate on a completely different level. Thanks to alliances, all partners of a specific alliance form an enormous branding and code-sharing campaign that facilitates the connection of travelers in any member’s network around the world.

To this day, there are three main airline alliances around the world: Star Alliance, SkyTeam, and oneworld.

The largest among them, Star Alliance, was established in 1997 by AC, LH, SK, Thai Airways (TG), and UA. It introduced a novel approach to airline collaboration, allowing passengers from anywhere in the world to travel between countries by connecting through the member airlines' hubs. This enabled travelers to earn alliance points and enjoy the privileges of the Alliance's frequent flyer program.

Oneworld was founded in 1999, followed immediately by SkyTeam in 2000, whose annual passenger count is 630 million, the second largest of the three alliances.

The creation of airline alliances has had an enormous influence on the development of today’s commercial aviation industry, mainly by conducting the world’s traffic flow through huge airline hubs on every continent. Every region of the world has at least three members of alliances, usually direct competitors in a specific market.

In the US, UA represents Star Alliance from Chicago (ORD). American Airlines (AA) leads oneworld from Dallas (DFW), and Delta Air Lines (DL) represents SkyTeam from Atlanta (ATL). The three biggest American carriers compete directly mainly on the domestic aviation market, offering their connecting flights through their main hubs and linking the rest of their international routes to their other respective alliance members.

The same thing happens across the Atlantic Ocean, where the Lufthansa Group is the main Star Alliance European member, based in Frankfurt (FRA) and Munich (MUC), IAG is the main oneworld member, based in London (LHR) and Madrid (MAD), and the Air France-KLM Group is the main SkyTeam member, based both in Amsterdam (AMS) and Paris (CDG).

Due to this quite well-structured distribution of airline hubs both in America and Europe, a curious phenomenon happens when someone looks up the flight schedules of, for example, Delta Airlines and finds out that it offers a total of ten daily transatlantic flights from cities all across the United States to Amsterdam, KLM’s hub. At the same time, UA serves only five daily connections, and AA barely has two, only from its DFW and Philadelphia (PHL) hubs.

This scheme repeats itself in other alliance hubs such as FRA or LHR, and it represents the enormous power an alliance has to change the course of an airport regarding its traffic and operating airlines.

Airline Groups

An airline group follows a similar concept as the airline alliance, with the difference that, in an alliance, every carrier operates and develops individually. In the case of an airline group, there is usually a bigger company that absorbs, buys, or merges with another airline to form a large enterprise that directs and operates all carriers as a whole but with different branding.

This can be applied from Lufthansa (LH) creating the low-cost subsidiary Eurowings (EW) to Iberia (IB) merging with British Airways (BA) to form the International Airlines Group (IAG), one of the biggest airline holdings in the world.

The advantages of an airline group primarily lie in its ability to share and utilize the resources of its members without the typical barriers and structural challenges that may arise when two non-collaborating airlines attempt to do so.

As an example, Iberia's main maintenance center in Madrid, called "La Muñoza," is historically respected and well known for its complete maintenance checks for aircraft and engines. Because of that, and knowing that Vueling (VY) and Level (LV) are part of the IAG Group, it is common for them to send their aircraft to have maintenance tasks and checks in "La Muñoza."

Another example is the massive transfer of a large part of the Airbus A380 fleet of British Airways (BA) to Madrid-Barajas (MAD) in November 2020 due to a lack of demand to operate those aircraft. Even though other airports such as Chateauroux (CHR), Teruel (TEV), or Doha (DOH) proposed their long-term aircraft parking services, BA also chose MAD to store their aircraft because the airport offered lower costs in storage and maintenance work for the IAG partner. A total of nine Airbus A380s were stored at peak in Madrid during the pandemic.

Airlines within a group can also borrow physical aircraft for their operations, in case the demand is unbalanced between the two and a transfer is needed. This situation is very common in regions like Europe, for which airlines have already taken steps to be prepared for these situations.

One of the reasons Lufthansa, Swiss, Austrian, and now Brussels Airlines have been changing their liveries to the colloquially known "Eurowhites" is actually to facilitate long-term aircraft transfers between airlines that would require sometimes a work of paint by leaving most of the fuselage white and applying colors in the tail and around the airline logo.

A Look into the Past and the Future

The global aviation market has always been a very delicate business with thousands of economic, geopolitical, and technological variables that have the power to change the course of its evolution through time, where only the biggest, smartest, and strongest airlines can survive. Every big crisis that has happened during the last 100 years has taken with it the lives of many airlines we can't see operating anymore, such as Thomas Cook Airlines, PanAm, or Alitalia.

Usually, one of the options for bankrupting airlines is to merge with other carriers to form a strong new company. This was a common situation in America, where the ten biggest US airlines in the 1950s ended up combining into the biggest four we all know: AA, DL, Southwest Airlines (WN), and UUAnited.

Europe has a similar approach to this phenomenon, where most of the national carriers today belong to either IAG, the Lufthansa Group, or the Air France-KLM Group, and if not, have been merging with other companies to form stronger airlines, as it happened with the TUI Group.

A theoretical look into the future of the global airline industry would not have to differ from today. New carriers getting created, going bankrupt, and merging with bigger companies is a common practice in the day-to-day of many other markets.

This will result in bigger and bigger airline groups that will end up controlling most of the demand for commercial aviation.

Featured image: Adrian Nowakowski/Airways