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Investing in Delta Air Lines: A must-know company overview

Part 5
Investing in Delta Air Lines: A must-know company overview (Part 5 of 14)

Why mutually beneficial co-operation agreements affect airlines

Agreements in the airline industry

Airlines expand their network through strategic alliances and joint ventures to minimize investments in capacity expansion and instead optimally use resources in a way that’s mutually beneficial. This cooperation happens at different levels of integration. Carriers that engage in revenue or profit sharing joint ventures with anti-trust immunity, or ATI, granted by the United States Department of Transportation, have the highest degree of cooperation, while the degree of cooperation is lower for carriers engaging in just code sharing, frequent flying programs (or FFP), and lounge access.

Spectrum of airline co-operationEnlarge Graph

Strategic alliances

Airline alliances are formed by two or more airlines to share resources, flights, routes, and benefits from increased efficiency in network management and resource utilization, mainly through code sharing. Under code sharing agreements, two or more airlines share the same flight. The airline that provides the flight, crew, and ground handling services is called the “operating carrier” and the airline that only sells tickets for the flights provided by the operating carrier is called the “marketing carrier.” Around 60 airlines are part of one of the three global passenger airline alliances: Star Alliance, Sky Team and One world. Delta Airlines (DAL) is the founder member of the SkyTeam and has code sharing arrangements with around 16 international carriers. United Airlines (UAL) is part of the Star Alliance group, while American Airlines (AAL) belongs to the One World Alliance group. Southwest (LUV) and JetBlue (JBLU) aren’t members of any of these three alliances.

Joint ventures

Joint ventures are generally formed by fewer carriers, usually two airlines, and mostly concentrated on specific markets. The Delta, Air France, KLM, and Alitalia joint venture, for example, formed to improve coverage on transatlantic routes. These partners market themselves as a single entity, share revenue and costs, and fly under a shared operating certificate.

So, in a joint venture, the cooperating companies don’t remain independent companies. These agreements are more legally binding than a strategic alliance, under which the cooperating companies remain independent and enjoy more flexibility.

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