Airlines Code Sharing

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Airlines Code Sharing

Delta Airlines entered into a joint venture with the Air France KLM group in 2009 in order to expand flight offerings to customers. Slightly different from a typical code share agreement, in this joint venture, Delta and the Air France KLM group agreed to share costs and revenues of their trans-Atlantic route network. Below is an overview of the partnership.

History

  • In May 2009, Delta Airlines and the Air France KLM group announced a joint venture in which the partners would coordinate operations and share costs and revenues on trans-Atlantic routes between North America and Africa and the Middle East and India. In addition, flights from Europe to select Latin America destinations were included in the agreement.
  • Earlier, in 2007, Delta and Air France had entered into a preliminary joint venture agreement, while KLM had signed a joint venture agreement with Northwest in 1997. Air France and KLM merged in 2004 and Delta and Northwest merged in 2008. The natural strategy was to reiterate the joint venture agreements between the newly formed groups.
  • In the scope of the agreement, all flights between the United States and Europe, Amsterdam and India, and North America and Tahiti are jointly operated with strategy and economics equally shared between the parties. Flights between the United States and the European Union will be code-shared, as well as where traffic rights permit.
  • The joint venture was designed as a long-term, evergreen contract for 10 years. Any party wishing to cancel the contract would be required to give three years notice after the initial ten-year term.
  • At the time the agreement was announced, global travel was weakened due to economic downturn. According to Pierre-Henri Gourgeon, president and CEO of Air France KLM. "By optimizing the use of our pooled resources, this joint venture will help us weather the current economic situation and protect our product offering."

Joint Venture Structure

  • The joint venture agreement called for equal sharing of the governance of the structure without the creation of a subsidiary. According to Richard Anderson, CEO of Delta Air Lines, ""The structure of this joint venture, in which we operate as a single business where we consensually develop our strategies and share revenues and costs, provides the incentives for us to collaborate in a way that generates benefits for customers, shareholders and employees of our three airlines."
  • An executive committee was established comprised of three CEOs. In addition, a management team was established comprised of representatives from Marketing, Network, Sales, Alliances, Finance and Operations. These two teams would define the strategy of the operation.
  • Ten working groups were developed to implement and manage "the network, revenue management, sales, product, frequent flyer, advertising/brand, cargo, operations, IT and finance" sectors of the operations.
  • The agreement is slightly different from a traditional code sharing agreement in which one airline bears the cost of operations while the other airline receives a share of revenue. In this agreement, both airlines will share costs and revenues of flights within the agreement regardless of which airline operates the flight.
  • Approximately 25% of the total trans-Atlantic capacity is represented in the joint venture. The airlines will operate over 200 daily flights with a daily seat capacity of over 50,000.
  • The operations are structured around 6 main hubs: Amsterdam, Atlanta, Detroit, Minneapolis, New York-JFK and Paris-CDG and 4 minor hubs: Cincinnati, Lyon, Memphis and Salt Lake City. It will also increase the visibility of each airline in over 400 airports around the world.

Agreement Expansions

  • In 2010, Alitalia, Italy's top airline, joined the agreement. This addition added Rome as a core hub and Milan Malpensa as an additional service hub.
  • In November 2019, Delta and the Air France KLM group received approval to add Virgin Atlantic to the pact. This would increase combined capacity by 4%. Alitalia was not included in this agreement and what role the airline will play in the future is undetermined.
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