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Senior valuations analyst
Ascend by Cirium
Today I thought I would give you a short perspective on the interesting subject of code sharing and interlining, events which appear to be occurring at an increasing rate in the Airline & Freight operator world. We’ll ask the question whether Code Sharing is becoming more important as we move through a challenging period of rising costs from both high inflation and interest rates throughout the world and we’ll also ponder whether operator asset-class size is a determining factor in partnerships.
Code-Sharing enables Airlines to sell tickets to destinations they don’t fly to thus also opening up a wider choice of flights to passengers and freight routes.
Crucially however, operators have access to new routes without having the expenditure of having to purchase/lease aircraft, train crews and pay parking fees. This is particularly attractive today with both inflation and interest rates becoming more of a burden to the Airline industry. With both Manufacturer and Lessor costs also rising at rates not seen since for some years, operators are being faced with an urgent need to save money through the pursuit of economies of scale.
In such an environment, operators are most certainly re-thinking their short to medium term fleet/route structures and partnering with other airlines is one solution.
In Q1 2023 to-date one has only to look at the Cirium Dashboard news to see the prevalence of new, and potential code-sharing agreements:
- Air Canada Cargo and Emirates SkyCargo have teamed up allowing each of these operators access to the belly-hold capacity of each other’s passenger aircraft.
- New start-up operator Canada Jetlines is discussing an agreement with Qatar Airways.
- British Airways entered into a Code-Share with S.A. Airlink;
- Air Serbia renewed and extended their partnership with Air China.
This activity comes on the back of over 50 agreements observed last year.
What is interesting to note is that the partnerships are more likely to involve operators with a widebody fleet linking up with a short-haul narrowbody fleet (and vice-versa of course) and the Q1 2023 passenger partnership activity mentioned above confirms this trend.
So, heaps of activity going on out there and expect more to happen. Linking up can be a contributing factor towards increased revenue and profits.
Let’s have a quick look at one success story, Australian regional carrier Regional Express (REX) which further highlights the asset-class trend. REX has successfully introduced a growing fleet of Boeing 737-800s into their routes and are beginning a turboprop fleet replacement program with ATR’s. The icing on the cake though is the interline agreement with Delta Air Lines which came into effect last October which allows each other’s passengers to seamlessly connect on and off each other’s flights. Who would have thought a major North American carrier would team up with a relatively small operator like REX? Well, it’s happened and confirms that REX is expanding at a phenomenal rate and, according to the Cirium Dashboard, expects to post a positive profit for the full financial year.
Expect to see many more partnerships as 2023 progresses.
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