how does a codeshare work exactly (under the surface)
 

for an AA codeshare on JAL, how does the codesharing work? Does AA pay JAL a set fee for each seat they sell? Does AA keep all the gross revenue they sell on the flight? Does AA contribute at all towards the costs of the flight? So if AA completely sells out the flight, does AA keep all the money and just pay JAL the set fees for each seat and leave the expenses to JAL? Since elite bonus applies for the AA code but not for the JAL code, is it because AA is free to set the fare at whatever it wants? Does JAL only allocate a set amount of seats for AA to sell?


How is this all different from star alliance codeshares? I know a UA codeshare on Air China accrues miles according to Air China's rules and doesn't earn elite bonus, so is the arrangement in Star Alliance different?

You've asked a lot of questions, and which have very different answers. I'm willing to answer some, and assume that other FTers will address others. OK, here goes....


The operating carrier pays the selling carrier a fee for providing/referring the passenger. Think of it this way, -- the operating carrier owns the plane and the seats. The codeshare carrier is just a selling agent. I don't know if it the fee is a set dollar amount (which I would guess to be unlikely) or a percentage of the revenue realized from that pax on that segment (which I think more likely).


The operating carrier gets all the revenue except what it pays the selling carrier.


Won't happen. The operating carrier only makes a certain number of seats in each cabin/fare category available for sale on a codeshare basis because it would rather sell the seats itself than pay the commission.

There are more ways to structure a codeshare agreement than might be apparent on the surface. I've negotiated codeshares that were based upon "hard blocks", "soft blocks", "moving block", "free sales", "revenue sharing", "open sale", "sell and report" and various other systems.

In a "hard block", the operating carrier makes available a fixed number of seats to the marketing carrier. This is usually done on a fixed cost per seat basis. The marketing carrier then applies its own yield management to these seats and sells them in competition with the operating carrier. If the marketing carrier fails to sell all the seats, then they go empty.

In a "soft block", the marketing carrier reserves the right to return to the operating carrier any unsold seats at various given points in time. Their liability to the operating carrier is reduced accordingly. The payments due may vary depending on whether the operating carrier is able to resell the seats returned.

In a "moving block", the marketing carrier guarantees a minimum number of sales over a given period based upon inventory ranges made available by the operating carrier. These ranges may be fluid or prenegotiated or a combination of both depending on specific operational day.

In a "free sale", the marketing carrier sells the operating carrier's inventory without any restrictions at either mutually agreed fares or unilaterally set fares.

In an "open sale", the marketing carrier sells the operating carrier's inventory until the operating carrier stops them from selling any more.

In a "sell and report", the marketing carrier sells the operating carrier's inventory independent of the operating carrier's systems and simply updates the systems subsequently with details of sales completed.

In a "revenue sharing" system, the marketing carrier and the operating carrier share all costs and revenues in pre-determined proportions, irrespective of who the actual cost may be incurred by or where the revenue may have been generated. This is the system used by most alliances who have attained anti-trust immunity.

Beyond this there are further restrictions as to traffic rights and markets in which the codeshares may be marketed and the settlement procedures and whether surcharges may be applicable and literally hundreds of other possibilities.

I think the selling carrier buys the seat from the operating carrier, and re-sells it to pax for whatever it wants to charge.

Please see immediately preceding post, which beat me to the punch and is quite accurate. That is one of many options.

What it comes down to is that the two airlines can make any kind of agreement that makes sense to them. There are no rules.

Frequent flyer program mileage accrual is unrelated to how the code-share contract between the airlines works. In oneWorld, credit is determined by who sold the ticket. In Star Alliance, it's based on who operates the flight. So, if you buy a seat on a flight operated by Airline A as Flight XXXX on Airline B, in *A you get credit as if it's on A, but in OW as if it's on B. (Don't know about other alliances.) This matters when the mileage earned for flights on A and B in a given fare class is different. (A complication in *A is that a ticket bought from B in a given fare class may translate into a different fare class on A, but it can be hard to find out what that is because the passenger only sees what the selling airline, here B, sold.)

Thanks, bniu for the question. And thanks, B747-437B for your answer.

I've always assumed I knew the answer, but you've expanded my understanding.

Thanks also, Efrem, for the mileage perspective.

a real hard hard block example.

CO bought a hard block on the iad-lhr virgin atlantic flights. the front set of seats in upper class showed up available on the virgin. the back set on CO. in winter, CO would have a biz class sale(co had no first). the CO seats were around $1000. virgin sold the seats as first class for over $6k each, and sold very few. sort of ended up looking like a UA first class.

don't see that little discontinuity now, but maybe it will show up if
CO has their regular winter biz class sale.