Airline partnerships are more complex and advanced than ever before, both for the better and worse. About 20 years ago the Star Alliance was formed, which was revolutionary at the time. SkyTeam and oneworld quickly joined the scene, and while they all still exist, the focus lately has been on joint ventures. After all, with these alliances having so many members, how much can these loosely affiliated airlines really have in common?
Airlines want to work with other airlines that complement them best, and this can come in many different forms. Just to give a few examples of partnerships that have emerged outside of the traditional alliances in the past several years:
- Even though Qantas is in oneworld, they have a big joint venture with Emirates, for their flights between Australia and Europe (though they’re changing that up a bit)
- Even though Air Canada is in the Star Alliance, they codeshare with both Cathay Pacific and Virgin Australia
- Alaska doesn’t belong to any alliance, but has codeshare agreements with over a handful of airlines
With that in mind, I frequently get questions from readers asking to explain the difference between these various agreements, so I figured it would be fun to do that in this post. Before I do so, let me add two disclaimers:
- This stuff is really nuanced given how many different agreements airlines have, so my goal here is to generalize so that beginners can understand the basic distinctions, rather than getting into the nitty-gritty
- It’s my understanding that there are as many different agreement structures out there as there are agreements, so unlike how it may have been in the past, there’s no consistent answer as to how the revenue split works between airlines under each of these agreements
With that out of the way, let’s briefly discuss these four types of agreements:
Interline agreements are the most basic kinds of agreements you can have between airlines. An interline agreement is simply a commercial agreement between airlines to handle passengers when they’re traveling on multiple airlines on the same itinerary. This allows passengers to check their bags through to their final destination, check-in all the way to their destination, potentially be rebooked on another airline in the event of irregular operations, etc.
This is a very basic level of cooperation, so there are airlines that have interline agreements that don’t otherwise partner. ExpertFlyer shows airlines that have interline agreements, so as an example here are the airlines with which American has an interline agreement:
Typically even US airlines that don’t partner with one another have an interline agreement. A couple of years ago Delta decided to opt out of an interline agreement with American, I guess because they found that American was rebooking more passengers on them during irregular operations than the other way around.
A codeshare agreement is the next level of cooperation between airlines. This is when two airlines realize there’s value in working together, and they decide they want to place their “codes” on one another’s flights. Typically the main benefit of this is that it drums up business for the airlines that are in a codeshare agreement with one another.
Maybe it’s easiest to explain in the form of an example. Air Canada is part of the Star Alliance and Cathay Pacific is part of oneworld. However, they have made the mutual decision to codeshare on both ends of their flights between Canada and Hong Kong:
- Air Canada flies to Hong Kong, though no Star Alliance airline has a hub in Hong Kong, so there’s not much Air Canada can do with their passengers who want to travel beyond Hong Kong; as a result, Air Canada codeshares on eight Cathay Pacific routes from Hong Kong to various points in Asia, to give passengers access to more destinations
- Cathay Pacific flies to both Toronto and Vancouver, though no oneworld airline has a hub in Canada, so there’s not much Cathay Pacific can do with their passengers who want to travel beyond Toronto and Vancouver; as a result, Cathay Pacific codeshares on major Air Canada routes to various points in Canada, to give passengers access to more destinations
The idea is that this is beneficial for both airlines. I don’t think either airline is getting a huge cut when you choose to book a codeshare flight rather than directly with the other airline (there may be some small cut), but rather the main motivation is to boost business for both airlines by increasing the number of flights that passengers have access to.
The “big three” alliances — oneworld, SkyTeam, and Star Alliance — have only developed in the past 20 years, though in the meantime many major global carriers belong to one of them. The basic way that alliances work are as follows:
- Airlines pay dues to belong to these global alliances, and have to agree to deliver certain benefits to passengers on a reciprocal basis
- While many airlines belonging to alliances will also codeshare, as such that’s not a requirement or a given
- The main benefit for consumers is that they can expect consistent benefits across the alliance, especially with elite status, like priority check-in, priority boarding, mileage earning and redemptions, etc.
- Airlines have to reimburse one another when their members use certain benefits; for example, if you fly Singapore Airlines and credit your miles to United MileagePlus, then Singapore Airlines has to pay United for those miles, or if you are flying Lufthansa but are accessing a lounge using your Air Canada Star Alliance Gold Card, then Air Canada has to pay Lufthansa for that lounge visit
While these are the biggest types of agreements out there, it seems like they’ve been deemphasized quite a bit lately.
Joint venture agreements
If a codeshare agreement is like dating, then a joint venture is like getting married. A joint venture agreement is a massive business decision that typically requires extensive government approval. When airlines form a joint venture they coordinate pricing and schedules, and have a revenue sharing agreement.
Exactly how that revenue sharing agreement works depends on the specific agreement, but the idea is that two airlines are essentially acting as one under a joint venture.
Note that typically airlines form joint ventures between specific regions, which is why this is different than an outright merger. For example, American has a transatlantic joint venture with British Airways, Finnair, and Iberia, while they also have a transpacific joint venture with Japan Airlines.
From the perspective of a consumer, a joint venture is both good and bad. The good news is that typically it gives you the most flight options in terms of schedules, since the airlines are operating as one. Airlines also often try to make the experience as consistent across brands as possible. The downside is that it’s like a competitor being eliminated in the market, so it could lead to higher fares as it reduces competition.
There are so many different types of agreements in the airline industry nowadays. While the exact terms vary with every partnership, I think the easiest way to sum it up is that an interline agreement is like a friendship, a codeshare agreement is like an engagement, a joint venture is like a marriage, and an alliance is like having a big family, with everyone sort of doing their own thing.
There’s a lot more to all of this, but hopefully the above provides a pretty fair and basic summary.