How Do Airlines Compensate Each Other For Taking Passengers During Irregular Operations?

Reader Jered wants to know:

  • How do airline awards work when redeeming points for travel on a partners? How much if anything do they compensate each other for award seats?
  • More broadly, “when I am accommodated on another airline, how does that work behind the scenes?” e.g. “[D]istressed United passengers on the BOS-ICN mistake fare having boarding passes for re-accommodation on Singapore Airlines being torn up by the Singapore gate agent because the passengers weren’t ‘worth enough’ so clearly some money is changing hands…”

Accounting for award tickets varies when you’re using an airline’s miles to fly on their own flights. Generallhy speaking the actualy cost of that ticket to the mileage program may be close to the marginal cost of carrying an additional passenger, such as $50 for a domestic flight. It’s a little bit more complicated than that, but roughly speaking the cost to provide a saver award seat to a member of an airline’s own program is very low.

It’s more expensive to provide a saver seat on an airline partner, although less than the actual cost of a paid ticket (which may be what a standard or rule-buster style award would cost on an airline’s own flights).

Generally speaking a first class award — which is more expensive to provide than economy or business — will cost hundreds of dollars per segment. Of course, these payments get netted out. United provides award seats to Lufthansa for their Miles & More customers to fly in, and Lufthansa provides award seats to United for their MileagePlus members to fly in. There’s accounting going both ways, and not just for award seats but for lounge access and indeed settling up over the entire transatlantic operation (as is the case for joint business venture partners).

The question of irregular operations, and how compensation works when passengers run into trouble with their flights, is a completely different matter — although airlines definitely do pay each other to accommodate each others’ distressed passengers.

As a general rule, the airline flying a passenger will receive what the airline that was supposed to fly the passenger would have received for the flight segment(s).

When an airline endorses a flight coupon over to another airline, that airline submits the coupon – and the value attached – back to the original airline for payment (IATA Revenue Accounting Manual 2.5.1).

Sometimes an airline won’t endorse the original coupon but will simply provide a Flight Interruption Manifest or ‘FIM’ which is basically a substitute flight coupon. it doesn’t contain the original ticket’s value on it.

I always assumed when a FIM is provided to a passenger, that the airline is going to pay the new carrier full fare for transportation. That’s not quite right, although the new airline – which doesn’t know the value of the original coupon – is going to bill full fare (IATA Revenue Accounting Manual 2.6.1).

What happens then is generally the issuing airline is going to reject the value of that FIM, research it and re-issue credit in the amount of the original flight coupon.

To take the Singapore Airlines scenario in the original question: When a passenger flying Boston – Seoul – San Francisco on United misconnects in San Francisco, and United tries to put that passenger onto the Singapore Airlines San Francisco – Seoul flight, whether via coupon endorsement or via ‘FIM’ United is ultimately going to pay Singapore only a few hundred dollars for the one-way San Francisco first class flight segment (on a $1700 mistake fare roundtrip ticket). That’s what Singapore wasn’t interested in.

Award tickets are a little bit different. In the event of irregular operations on an award, the ticket coupon doesn’t carry value based on the cost of the ticket. But it’s still possible for an airline providing transportation to get paid by the original carrier. That’s because — and my knowledge of this is old, so the specifics may have been superceded (but this was accurate in the past) — an award ticket is presumed to carry a value of 50% of the full fare for the segment (IATA’s Revenue Accounting Manual 2.5.6).

IATA makes an interesting observation about these tickets (re-typed manually by me):

This rule assumes the value of the passenger to a carrier as a frequent flyer generating a lot of revenue even though the ticket that he is holding now is an award ticket. It is easy to assume that this coupon has no value and as a result will cost the “Forwarding Member” the equivalent of 50 percent of the one-way fare. However in determining this, one must accept that a frequent flyer ticket is not reflecting the value of the coupon but the value of the passenger as a loyal customer. In fact there is a value attached to a reward ticket.

I know there are some of my readers that are expert in this, managing revenue accounting for airlines and across airlines, so I’d appreciate chiming in with clarifications or corrections if needed.


About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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Comments

  1. A few years ago, United rebooked me on a Cape Air flight and the Cape Air website displayed a price of ~$350 for a last minute ALB-BOS flight.

  2. Does anyone have a link to the story about Singapore throwing away United coupons? I searched Google, but only this article seemed to come up.

    I booked that fare for early next year, so I’d like to learn more about what happened.

  3. Most interesting. I’d like to see a current expert answer these questions in more detail. Obviously, you’ll have to protect their IDs with care.

  4. Very interesting. I received a FIM during an IRROP with Air China, and it’s a 3 part carbon copy form with signatures and stamp. Unfortunately, I was misconnected again in SFO, and the United agent, acting on behalf of Air China as outsourced agent, rebooked me on an UA flight instead of AS, but had to get the FIM reissued and resigned/restamped by the Air China supervisor. It’s basically treated like a paper ticket.

  5. I was aware of the BOS-ICN UA F error but this SQ incident is news to me… can someone point me to the discussion about it?

  6. Not sure why you still label something as “mistake fare” after so many …

    There is only low fare my friend, nothing mistake.

  7. My impression was that paper FIMs are quite rare nowadays. I’ve only ever traveled on one once, and that was a few years ago, and each of the agents I interacted with (after the ones who issued it) thought it was quite extraordinary to see one of them “in the wild.”

  8. I’ve often seen a fare basis printed on the newly reissued ticket when being reaccomodated and wondered whether that fare was what the airlines paid one another.

  9. Does anyone have any info on the SQ incident??? When I google it, all that comes up is this page.

    I got in on the United mistake fare for 2015 (thanks, Gary) and would like to know.

  10. Interesting piece.

    So if during a rebooking due to irrops the (new) operator only gets the originally paid fare, why do airlines not abuse this system?

    I could imagine an airline regularly rebooking passengers onto other carriers when there is a light load, making the flight not profitable. Especially on busy routes, where the delay will be minimal, why is this not common practice? It seems that the original carrier is not losing anything with such practice?

    In fact, that would allow for selling cheaper fares than the competition, as only fully loaded flights will be actually performed..

  11. I think people should know that there are many, many underlying interline agreements. Many go back to 60s and 70s, long before the alliances. Interline agreements cover many, many different services. Bag checking and re-accommodation are just the ones most flyers are familiar with. For example some airlines re-accommodate with no charge to the originating airline. Yes, that still is done. What I am getting at is, that as cutthroat as airline industry is, many of the airlines do cooperate behind the scenes.
    While the alliances do carry a lot of weight with regular daily operations, during irrops, especially internationally, everything can get thrown out the window. But, even more surprising is that airlines with normally no relations, will make exceptions, and issue tickets, purchase tickets to get passengers to their destinations. But don’t count on that happening if your ticket was on a mistake fare, etc. All of the airlines are taking mistake airfare tickets like poison, if touched.

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