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Airline alliances and code-sharing

by Edward Hasbrouck, author of "The Practical Nomad"

International airline routes are generally much more complex, and involve more choices of airlines and connection points, than domestic flights within any single country, whether the USA or any other. That's why, for several years after its introduction, Orbitz.com's much-hyped software for finding multi-airline connections and combinations for trips within the USA didn't work at all for international flights. For those, Orbitz.com, relied on a computerized reservation system ("CRS"), just like any other travel agent (although in Orbitz.com's case without offering any of the discounted consolidator ticket prices that give travel agencies their big advantage over buying tickets directly from the airlines).

It's a triumph of standardization and interoperability that the CRS's used by travel agents can give access to schedule and price information (although not complete price information -- no single source has that) and ticketing capabilities for hundreds of airlines, even very small ones with no offices abroad, through a single user interface. One of the things for which a CRS is most useful is booking and pricing journeys that involve flights on more than one airline.

That's essential for any trip around the world. Only four airlines (the original Pan Am, Air France, and more recently Aeroflot and United Airlines) have ever operated flights entirely around the world, and none of them currently does so. United Airlines still owns Pan Am's government-granted rights to fly a route around the world, but doesn't choose to use them. As long as governments let them get away with it, it's easier and cheaper to put their label on code share flights by other airlines, and just pretend to offer an around the world route system.

The best routes (best for travellers, that is) for many journeys involve travel on multiple airlines, and not necessarily ones with reciprocal agreements to promote each others' services. But you won't find those routes if you rely on the airlines themselves for advice: none of them will tell them about routes that involve travel on other airlines, except their own marketing partners. The only way you're likely to find out about those routes is to go to a travel agency -- online or offline -- that's independent of any single airline or alliance.

Why, for example, did many of the teams on The Amazing Race fly from Mexico City to London by way of Paris? That's unlikely to have been the route that would get them to London soonest. But it's the route that would have been suggested by the staff at Aeromexico, since Aeromexico is a partner in the Skyteam marketing alliance with Air France. This is exactly what airline alliances are designed to do for the airlines, and why they are bad for travellers. The racers were steered to the fastest route on a Skyteam marketing partner, rather than the fastest route on any airline.

Airlines claim code sharing and alliances enable them to offer better services like through ticketing, baggage transfers, and frequent flyer mileage credits between alliance partners. For example, in his rebuttal to a USA Today editorial on codesharing in December 2009, with the headline of "Code-sharing benefits fliers", Roger Cohen, the president of the Regional Airline Association (RAA) said:

"As complex as travel may seem today, it was far more inefficient previously.... Passengers have to purchase only one ticket, have to check in bags on only one airline and have to clear security only once. Before code-sharing, passengers needed to buy tickets on separate airlines, often needed to claim and recheck bags, and might have needed to clear security in multiple terminals."

But that's an out-and-out lie, and the RAA must know it's a lie. Not one of these services requires alliances or code sharing. They are all aspects of "interlining", in which both "regional" airlines (all airlines in the USA were regional in the early days, and interlining was essential to coast-to-coast travel), and international airlines had interline ticketing and baggage agreements in place, based on interline systems used long before that by the railroads (until Amtrak, no single railroad crossed the USA), from the earliest days of the airline industry. The international standards that the airlines themselves established decades ago through IATA permit all IATA member airlines, not just alliance partners, to publish through fares and establish interline ticketing and baggage transfer agreements. Any IATA-appointed travel agency can sell tickets on any IATA airline, including tickets at a single through fare for a multi-airline journey. Different airlines that want to facilitate interline transfers can use close-tohgether gates at the same terminals, so that pasesengers don't need to go through extra security checkpoints, regardless of which airlines' flight number(s) they use. And even alliance members often give frequent flyer mileage credit for travel on non-alliance airlines, without code sharing.

Code sharing is unnecessary for, indeed irrelevant to, any legitimate purpose or actual service. Code sharing doesn't enable an airline to fly to any more places. It just enables the airline to mislead travellers into thinking that they fly to places they don't. I call that fraud.

Both code sharing and "change-of-equipment" flight labels also serve to "game" the Computerized Reservations Systems used by both offline and online travel agencies for fraudulent purposes, to travellers' detriment. All else except the labelling being equal, CRS's rank and display purportedly same-airline connections ahead of honestly described interline connections, and purportedly "through" change-of-equipment flights ahead of honestly described connections between multiple flights.

In another press release, the RAA claims that, "The identity of the airline is clearly displayed on every single ticket." But that's a lie, too. As I pointed out in the most recent USA Department of Transportation rulemaking on disclosure of code shares:

"While itineraries usually indicate the operating airline, tickets and boarding passes -- the things travellers are required to have in hand while searching for a flight or gate, even if they don't have a printed itinerary -- do not. Indeed, IATA and airline rules provide no field on a ticket or boarding pass for the designation of the operating airline, and forbid the entry of other information in those fields. A travel agent who wants to indicate on a ticket which airline actually operates a code-share flight is forbidden from doing so by airline ticket issuance rules and procedures."

It's lies like these from the airlines that demonstrate the need for Federal action to protect consumers against airline fraud, including fraudulent codesharing, as I've been saying for years.

An American Airlines advertising campaign a few years ago, for example, focused on the claim that American had increased the spacing between seats "throughout coach" on their flights. All else being equal (it usually isn't, since American is typically an expensive airline) travellers who relied on those ads as a basis for choosing a flight labeled, "American Airlines" over a flight by some other airline, had a right to expect more space. But no: thousands of code-share flights every day were being labeled with American Airlines flight numbers, despite being operated by other airlines that hadn't added more room between rows of seats.

That's not the worst of it, though. The real purpose of the major global airline alliances is to solidify the oligopoly of their participants, and to drive smaller non-participants and even large non-aligned airlines out of business -- so that the remaining airlines can raise prices, while travellers are offered fewer choices.

Exemptions from antitrust law to permit airlines to fix prices and routes together, as part of airline alliances, have gotten at least some critical scrutiny. But they are far from the worst of the government policies in favor of airline oligopolies and against the interests of air travellers, especially in the USA.

By law in the USA, licenses to carry passengers by air between points in the USA ("cabotage", in airline lingo) can be given only to "US persons". Airlines incorporated outside the USA, airlines with more than 25% ownership by non-USA entities, or airlines "controlled" by a foreign entity, regardless of actual ownership, are categorically barred from competing on routes within the USA -- the world's largest domestic airline market.

The primary victims of this xenophobia and protectionism, of course, are domestic travellers in the USA who are denied the additional competition, superior service, and lower prices that they can get from non-USA airlines on international routes.

For example, Richard Branson's Virgin Atlantic Airways had subsidiaries operating flights within mainland Europe (Virgin Express) and within Australia (Virgin Blue) for many years. Only the restrictions on "foreign" competition prevented him from starting a similar domestic subsidiary in the USA. Only after years of legal and political wrangling was Branson finally allowed to invest in the startup of "Virgin America". But to satisfy USA law, he's restricted to minority ownership and to only 25% of voting rights, with a controlling majority partner in the USA. Service on Virgin America is far better than on most USA airlines, but it was held back fro years, and travellers in the USA are still denied many of the potnetial benefits that would accrue if the foriegn "silent" partners were allowed to share their expertise and experience freely with the USA operation.

As for prices, figures from the Air Transport Association, the airlines' own lobbying organization, show that the average revenue per passenger mile (i.e. the average ticket price) for major USA-based airlines is substantially higher on their (protected) domestic routes within the USA than it is for those same airlines on international routes (where they might have to compete with foreign airlines). Scarcely surprising: even within the USA, a wide variety of studies have shown that airfares between any two cities since airline "deregulation" in 1978 are an inverse function of the number of airlines offering service between those cities.

Air travellers in the USA get the worst of all worlds: prices artificially inflated by protectionism, taxes increased to support government subsidies to airlines, exemption of the airlines from state and local consumer protection laws, and a hands-off attitude by the Federal government towards even the most egregious violations by the airlines of existing federal consumer fraud and truth-in-advertising laws.

I've interviewed some of the senior Federal officials responsible for policing airlines in the USA, and I'm appalled by their lack of interest in doing their duty to protect the public against airline ripoffs.

In their defense, US Department of Transportation officials claim they don't have enough staff to do the job right. That's true, but they waste their limited resources logging quality-of-service complaints, when they should be putting their priority on stopping airlines from misleading the public, on a routine basis, about basic facts like which airline operates the flight (code sharing) or how much a ticket costs (advertising "half round-trip" prices for which nothing can be bought).

Yet it's the government of the USA, and airlines based in the USA, that are whining self-righteously about "open skies", "free markets", and the "unfair" protectionism of other countries' reciprocal restrictions on access to their much smaller, much less significant, domestic airline markets. Like so much else the airlines are saying in their quest for even more special treatment and subsidies from governments, it's pure hypocrisy, motivated by pure greed.

It's particularly unfair that taxpayers are required to subsidize air travel -- directly and indirectly -- more than such other means of transportation as Amtrak trains or public mass transportation. Ordinary people in the USA could afford to travel more by air, especially internationally, but they don't. Outside of a small "jet set", most people in the USA do their regular travelling by land, and fly only rarely. Most air travellers are relatively wealthy. Government subsidies to air travel are among the most regressive taxes in the USA.

If airlines want true deregulation, they should accept truly open skies, including abolition of the restrictions on cabotage and foreign ownership, and truly free markets, including an end to government subsidies and bailouts. If, on the other hand, airlines want governments (i.e. taxpayers) to underwrite their continued operations, and grant them special privileges, they should accept a reinstatement of government regulation of prices and services (i.e. a return to regulation), to ensure that they use those government subsidies, and exercise those special privileges, in the public interest.

[Adapted in part from articles originally published here and here. Last updated 30 January 2006. See also my report and my comments filed with the USA Department of Transportation on proposed changes to the DOT regulations on airline codesharing.]


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