South Korean and Chinese airlines finally launched the first-ever scheduled flights between their respective capitals in December following agreement on a commercial pact to pool revenues.
The insistence by Air China and China Eastern on such a pact had surprised Korean Air Lines and Asiana, which were ready to start scheduled services in November following the signing of the bilateral agreement. The Chinese carriers held out, however, for a revenue pooling pact. In part, their concern stemmed from the threat of traffic diversion, which they have suffered on other ex-China routes. However, their main worry was that the Koreans planned more capacity on the key Seoul-Beijing route.
Between them, KAL and Asiana are operating four more weekly return flights than Air China on the intra-capital route, while China Eastern's weekly frequencies exceed Asiana's on the Shanghai route by only one.
Anticipating less business, the Chinese asked for 15 per cent of the total revenue earned on any flight where their Korean counterparts carried 20 per cent more passengers than the Chinese. The Koreans countered with a higher traffic disparity threshold and a lower revenue sharing rate. In the end, both sides dropped the threshold requirement and set the revenue rate at a modest 4 per cent. Thus, on any flight where the Koreans carry more passengers than the Chinese, they will pay 4 per cent of their gross revenue from that flight.
The Koreans were satisfied because compensation is triggered by a simple excess and is not linked to the actual difference in traffic levels.
The Koreans were satisfied because compensation is triggered by a simple excess and is not linked to the actual difference in traffic levels.
Source: Airline Business
