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How Do Airlines Compensate Each Other for Award Seats?

How Do Airlines Compensate Each Other for Award Seats?

Old Jan 8, 12, 2:29 pm
  #1  
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How Do Airlines Compensate Each Other for Award Seats?

<Usual disclaimer about not being sure if this is the right place to post this/hope the Mods will move it as needed>

I'm just back from a trip that involved award travel on three airlines, and only one leg used miles from one carrier (AA) for travel on that carrier. The others used AA or BA miles for travel on various partners. I realized I don't have a clue how the airlines compensate each other for award seats and I assume it may be interesting to others as well. If I use AA miles to fly CDG-LAX on Air Tahiti Nui, or BA miles to fly AMM-ORD on Royal Jordanian, what do AA or BA give to Tahiti or RJ in return for the seat?

We read a lot of speculation about what non-airline partners (banks, especially) pay airlines for the miles they give out as bonuses, but I haven't seen anything about what an airline gets for giving up seats to partners' accountholders.

If this has been discussed elsewhere, I'd love a link to the thread. And if it hasn't -- can a guru enlighten me?

Thanks in advance!
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Old Jan 8, 12, 3:06 pm
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Great question. I would like to know if anybody has an official answer.

I just assumed its a sunk cost in the partnership and there is nothing they get from an award flight booking.

I would think the real benefit is shared revenue for paid fares and shared costs between the airlines. It is a great way to expand your airlines reach without having to actually incur any of the added expenses of building out your business operations.

Just my guess. I have no clue what the actual agreement stipulates.
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Old Jan 8, 12, 7:33 pm
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Originally Posted by thetravelabstract View Post
I just assumed its a sunk cost in the partnership and there is nothing they get from an award flight booking.
HIGHLY unlikely. The airlines generally have direct bilateral agreements that define the remuneration for FF-related expenses, incluing lounge access, miles and redemptions.

Originally Posted by thetravelabstract View Post
I would think the real benefit is shared revenue for paid fares and shared costs between the airlines. It is a great way to expand your airlines reach without having to actually incur any of the added expenses of building out your business operations.
Yes and no. On routes where there is anti-trust immunity there is direct sharing amongst the involved carriers of costs and revenue, again per their contracts. On other routes they cannot collude on fares or inventory and would actually get in a lot of trouble if they did. There are codeshare agreements that stop short of the ATIs and there is the ability to publish a fare that includes carriage on other carriers wherein the selling carrier pays the operating carrier a set fee for the passenger.
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Old Jan 8, 12, 7:44 pm
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they have agreements & settle up periodically.....same w/code shares...

in the 60's. when air tickets were like cash almost, you could get on a competitors flight w/a ticket.....a ua employee told me that the carriers had a clearing system to settle up monthly iirc...
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Old Jan 8, 12, 9:15 pm
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Originally Posted by sbm12 View Post
HIGHLY unlikely. The airlines generally have direct bilateral agreements that define the remuneration for FF-related expenses, incluing lounge access, miles and redemptions.

Originally Posted by sbm12 View Post
Yes and no. On routes where there is anti-trust immunity there is direct sharing amongst the involved carriers of costs and revenue, again per their contracts. On other routes they cannot collude on fares or inventory and would actually get in a lot of trouble if they did. There are codeshare agreements that stop short of the ATIs and there is the ability to publish a fare that includes carriage on other carriers wherein the selling carrier pays the operating carrier a set fee for the passenger.
I knew it was something along these lines but didn't know the industry jargon.

Thanks for the detailed response.
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Old Jan 8, 12, 9:28 pm
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Originally Posted by clacko View Post
they have agreements & settle up periodically.....same w/code shares...

in the 60's. when air tickets were like cash almost, you could get on a competitors flight w/a ticket.....a ua employee told me that the carriers had a clearing system to settle up monthly iirc...
It would make sense that airline partners pay based on a set price per point redeemed..

But lets say, its a more complex itinerary, with 4 legs as opposed to a direct flight.. That would mean instead of getting 100% of the compensation on departure, the compensation for the departure would be split up into 4? or based on the number of miles flown?
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