Current Regional Airline Code-share Profiles
Note: These profiles are built off of current airline profiles in the website’s database. As with all things in airlines things are in a state of constant flux. The website does seek to keep each of the profiles updated within a few months of current, but the most reliable updates occur Spring each year when the publicly announced annual reports reveal a more accurate snapshot of current company statistics and projections.
A breakdown (warning it may not be current) is available at this link Regional-Code-Share-Profile
As you read different annual or quarterly reports you may notice different agreements. Most agreements can be categorized into three main types.
- Capacity Purchase Agreements (Fee for Departure)
- Pro-Rate Agreements (At Risk)
- Self Branded
Capacity Purchase Agreements(Fee for Departure)
These agreements comprise the bulk of standard regional feed. Motivated by devastated balance sheets in the early 2000s the major airlines looked elsewhere for capital, the ability to expand their influence, and maintain a presence in shrinking markets due to the downturn after 9/11. The Solution at the time was CPA’s or Capacity Purchase Agreements. In essence, the regional partner would front the money for the aircraft in return for long-term commitments by the mainline partner to purchase the agreed amount of flying necessary to support the purchase of the aircraft.
At the time this was a win-win solution for these management teams. The mainline partner got the additional lift, while the regional partner received long-term commitments at fixed rates. Regardless of whether the aircraft was empty or full, the regional partner would receive the same level of compensation( except for some incentive/bonus programs). If the regional partner’s costs remained roughly the same the profit margin would also remain the same regardless of how well marketed or positioned the flights were. On the flip side if the aircraft were completely full the mainline partner reaped the benefits while assuming the marketing risk, all with predictable long term costs.
As with anything, there are always “cons”. For the regional partner, some of the downsides have been tied to costs. If the region’s cost increased their was and is very little opportunity to pass along those increased costs to their mainline partners. Subsequently, poor agreements between some regional and majors have resulted in significant financial distress for some regional airlines. At the time the agreements may have looked attractive with their current cost structures, but as employee groups and company costs have naturally increased over time (as they slowly become mature companies) some regional costs have exceeded the amount their CPAs would pay.
For the mainline partners, the “cons” have been tied to reduced flexibility as they have committed to long-term contracts for a fixed amount of lift. This reduced flexibility has limited their ability to adjust to fluctuating market conditions on such things as oil prices, and changing demand.
Pro-Rate Agreements (At Risk)
Pro-Rate Agreements are similar to CPA’s in that the regional partner still flies the mainline flag and livery. Tickets are sold on the mainline partners’ ticketing service. That is the end of the commonality. Pro-Rate agreements are a reduction in risk for the mainline partner as the regional takes on the market risk (empty airplanes don’t affect the mainline partners as much), but at the same time, they are a reduction in reward (full airplanes don’t boost profits as much). It is quite the opposite for the regional who exposes themselves to more risk, but also increases their opportunity for a reward if they are smart.
For regional airlines to run Pro-Rate operations they need marketing departments, to run marketing analysis on where to best deploy there aircraft. For some there is a steep learning curve, moving from just doing as they told for a fixed fee(CPA) to actually determining where and how to deploy their aircraft to gain the largest profit.
As aircraft from CPAs are coming off leases and their CPAs are ending we are seeing a shift toward pro-rate operations as regional airlines renew leases for a significant discount. With the new lease costs, it becomes less risky for a regional to attempt to run their own markets. Even with reduced leases running a good Pro-Rate operation is a test to any management team, and quickly reveals bad teams.
Self Branded Flying
The next step up from Pro-Rate Agreements is Self Branded flying and or Code share. These contain the highest amount of risk for the regional partners but also contain the highest level of freedom and reward. If played poorly this type of flying will quickly bankrupt a regional. To this point, no large regional has ever successfully converted most of their operation to this type of flying. To do so requires an experienced marketing department, a ticketing department, and an astute deployment of aircraft to the right markets at the right times.
Regional Charter Operations could be considered Self-Branded Flying. An operation that carries its own flag is a sign of a Self Branded operation. Some examples in history include Republics Frontier operation, SkyWest’s AirTran operation (was an interesting version of this), Great Lakes is mostly Self Branded as are a few others.