A Code Share and Revenue Sharing Agreement is a legal contract between two or more airlines and such agreements are common in the aviation industry. Such agreements are drawn up so that there is clarity regarding the profit sharing between the airlines involved including losses if any as well as the expenditure incurred. Each airline has a unique code, so when you purchase tickets for a flight, the code might belong to a partner airline. The parties to the agreement are the airlines and with their individual codes, it can be determined how the revenue sharing will take place.
When do you need Code Share and Revenue Sharing Agreement
A Code Share and Revenue Sharing Agreement is required when two or more flights decide to market a flight using their unique airline designator and flight number so that all the revenue, losses and expenses relating to the particular flight can be shared equally. The purpose of Code Share and Revenue Sharing Agreement is to ensure that revenue and loss sharing arrangement is officially documented.
The question ‘how does a codeshare flight work’ can be answered if we look at an example. Each airline has an identifier which is the code bearing the 2-character IATA airline designator code and flight number. So, the airline AA123 (flight number 123 operated by airline AA) could also be sold by airline BB as BB456 and airline CC as CC789. So, in a code share agreement, airlines BB and CC are marketing airlines. Code sharing partnerships is a common practice in the aviation industry.
Inclusions in Code Share and Revenue Sharing Agreement
The kind of Code Share and Revenue Sharing Agreement would depend on the number of airlines involved. For example, if two airlines decide to go for a revenue sharing agreement, then this would be a bipartite agreement. It is therefore important that the names of the airlines involved should be included in the agreement.
The Codeshare Agreement should also include the effective date of the agreement, the flight route that is proposed to be shared, the basis of sharing revenues, the loss sharing arrangement and expense sharing. The details of the aircraft being involved in this arrangement should be given clearly including the configuration. The agreement would also contain clauses with regard to pilot training and availability, fuel management, change of control waiver and consent to the assignment. The rates to be charged by the airlines should be agreed mutually before drafting the agreement.
How to draft Code Share and Revenue Sharing Agreement
There are certain important points to be considered while drafting a Code Share and Revenue Sharing Agreement:
- The names of the parties to the agreement and the relationship between them should be included in the agreement
- The events which lead to termination of the agreement Termination Agreement should also be stated
- The fare to be charged on the flight should be mentioned clearly, including the escalation clause
- The agreement should be in compliance with the laws of the state under whose jurisdiction the agreement is made
- The aircrafts being used by the different airlines and their specifications should be mentioned in the agreement including the configuration, branding, and livery of the new aircraft
- The aircraft induction schedule and the return schedule should be mentioned
- The right to extend the agreement and the limits need to be mentioned
- Monthly reconciliation of estimated costs relating to maintenance and non-maintenance
Benefits of having Code Share and Revenue Sharing Agreement
When it comes to Airline Code Sharing, there are numerous benefits of having a Code Share and Revenue Sharing Agreement:
- The terms and conditions of sharing of the profits, losses, and expenditure to be shared are clearly stated so that there is no room for dispute.
- The participating airlines in the agreement are mutually agreeable about the flights to be operated by each airline code, so there is no confusion regarding this
- This business arrangement ensures that the participating airlines get access to greater traffic and therefore higher revenues.
Consequences of not having Code Share and Revenue Sharing Agreement
There are some major consequences of not having a Code Share and Revenue Sharing Agreement:
- There will be constant disputes regarding the sharing of costs, revenues, and losses. This will lead to losses for the airlines involved in the agreement.
- With a lack of understanding between the participating airlines, the passengers will suffer and this will result in lawsuits from passengers
Key terms in Code Share and Revenue Sharing Agreement
The key terms of Code Share and Revenue Sharing Agreement are as mentioned hereunder:
- Extension of original aircraft: The term by which the aircrafts being used will be extended
- Addition of aircraft: This section will mention the new aircraft being added to the fleet and the terms of procurement.
- Configuration, branding, and livery of new aircraft: The images which will appear on the aircraft
- Induction and reconfiguration schedule for new aircraft: All the initiatives to ensure that the aircrafts are flight worthy are mentioned here
- Rates to be charged to passengers: This section contains details of the predetermined rates, the escalation clause and the minimum margins to be kept.
- Monthly reconciliation: All non-maintenance and maintenance costs will have to be reconciled on a monthly basis.
- Crew rest regulation costs: Minimum rest requirements for the crew are mentioned here
[Also Read: Aircraft General Terms Agreement]
Sample for Code Share and Revenue Sharing Agreement
If there are more than 2 airlines who are interested in sharing revenues and expenses on the same flight route, then a Code Share and Revenue Sharing Agreement is mandatory.
You can download a sample Code Share and Revenue Sharing Agreement here.
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