What is a Capacity Purchase Agreement in the Airline Industry?
A Capacity Purchase Agreement (CPA) is a contract between two airlines wherein one airline, known as the ‘major carrier’, agrees to purchase a pre-determined number of seats from another airline, known as the ‘regional carrier’. Essentially, the major carrier is outsourcing a portion of its capacity to the regional carrier.
The regional carrier operates regional jets or turboprops on behalf of the major carrier under its brand and livery. The major carrier, in turn, markets and sells the tickets under its own name, thereby yielding a higher profit margin.
Why do Airlines Use CPAs?
Airlines use CPAs to expand their network and increase their market share while managing their costs. CPAs offer a lower cost alternative to the major carriers for expansion into regional markets. The regional carriers, on the other hand, can benefit from the marketing and brand recognition of the major carriers.
For the major carriers, CPAs provide an opportunity to improve their bottom line results by outsourcing their regional operations to smaller airlines, which operate at a lower cost. Regional carriers usually have lower operating costs, which can lead to lower ticket prices for customers.
What are the Benefits of CPAs?
CPAs provide several benefits to the airlines involved. For the major carriers, CPAs allow them to expand their reach and offer more destinations to customers without having to invest in additional aircraft and infrastructure. This can lead to increased revenue and market share.
For the regional carriers, CPAs provide a steady stream of business that can help support their operations and make them more profitable. They also benefit from the brand recognition and marketing efforts of the major carriers, which can help increase their visibility among customers.
Overall, CPAs are a win-win situation for both airlines. They allow the major carriers to expand their network while managing costs and provide the regional carriers with a steady stream of business and increased visibility.
In conclusion, Capacity Purchase Agreements are becoming more common in the airline industry as a way for major carriers to expand their network while managing costs. These agreements offer a significant opportunity for airlines to increase their market share and profitability, while still providing customers with a high-quality travel experience.