Korean and American Codeshare Arrangement – Insight

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In yesterday’s edition of aviation news, Experience The Skies reported the Korean Air Lines (KE) will codeshare on AA’s flight from Dallas (ICN) to Seoul (ICN) staring from April 1, 2015. Today, we will explore some of the possible reasons for this new arrangement.

Under the current arrangement, KE will place its own flight codes to AA 280 and 281 which will increase the weekly service to ICN from the lone star state from 4 to 9 flights. It is interesting that AA is not placing its own flight numbers on KE’s flight 32/33. The cooperation is also unique in that both airlines are in separate alliances. AA is a founding member of OneWorld while KE is with SkyTeam currently.

Flight schedule from DFW to ICN

Information taken from Google Flight on February 5, 2015 (All Rights Reserved)

Here are some possibilities on the arrangement:

1. Barrier of Entry – Asiana Airlines (OZ), chief Korean rival for KE is operating a cargo flight connecting ICN and DFW. By code-sharing with AA, KE can market the 9 weekly flight frequency with minimum costs. This could deter OZ from starting daily flights to the Lone Star State.

2. Competition – Currently OZ and AA have the same schedule for their flights. By working together, they can both benefit from revised schedules. Note by the image below, when this arrangement starts tentatively on April 1, 2015,  the KE flight will change to a 1210 departure time.

Schedule Change

Information taken from Google Flight on February 5, 2015 (All Rights Reserved)

3. Excess capacity – Currently AA has 5 weekly flights using a three class Boeing 777-200 aircraft with 247 seats on this route (2,470 seats weekly on a roundtrip basis). By checking the seatmap allocation for the April 1 flight as an estimate today, Economy is about 65-70% full while both Business and First is less than 50% full. By accepting KE’s offer to codeshare, additional loads and yields can be achieved without any additional costs for AA. If the arrangement works as intended, AA can expand to daily flights in the future.

AA Boeing 777-200 OneWorld

AA Boeing 777-200 OneWorld. Image taken from Airways News on February 5, 2015 Credit – Ian Petchenik / Airways News (All Rights Reserved)

4. The Delta Effect – Delta Air Lines (DL) revised the earning chart for its Sky Medallion(R) members. Starting from January 1, 2015, all SM members will not earn any Medallion Qualification or bonus miles when they fly on all KE operated flights (note chart below). This might deter DL fliers from connecting to Dallas just to catch the KE flight to Seoul  when Atlanta (ATL) is not too far away. As such, this arrangement can safeguard the airline from a short term revenue deterioration.

Delta Medallion Earning Chart for Korean Air Lines Flights

Image taken from Delta Air Lines’ website on February 5, 2015 (All Rights Reserved)

5. Airline Alliance Cooperation Limits – Although this flight is codeshared by fellow SkyTeam Alliance member Delta Air Lines (DL), KE is not receiving a lot of feeder traffic as DL does not operate a hub at DFW. As such, passengers need to be found organically. This may be more difficult as most Korean Americans live around the New York City and Los Angeles areas (per 2010/2012 US census).  Codesharing with AA would benefit KE by owning the south eastern quadrant of the US for the most ICN flights and direct connections.

Korean Air Lines (KE) Airbus A380

Korean Air Lines (KE) Airbus A380. Image taken from http://www.airlinereporter.com on February 5, 2015 (All Rights Reserved)