India: Code Sharing And Air Service Agreements: An Overview

Code-sharing is a fairly common marketing arrangement where an airline (a "Marketing Airline") places its designator code on a flight operated by another airline ("Operating Airline"), and then markets and sells tickets for that flight. Code sharing enables airlines to increase their traffic and revenues thereby profits, network size, service frequency, offering more destinations through the coordination of operations. Permissibility of code-sharing between airlines across different countries is largely provided for under the bilateral Air Service Agreements ("ASA's") governing the various freedoms of air entered into between two countries.

As such, this article seeks to provide an overview of the domestic and international framework that governs code-sharing arrangements in India as well as potential issues arising due to the different types of ASA's, especially in the context of rights of third-party countries under ASAs entered between two countries. Accordingly, we have divided our analysis of permissibility of third-party code-sharing into two sections (i) code-sharing under international law and bilateral ASA's; (ii) rules, regulations and policies issued by regulatory authorities in India; and (iii) potential conflict between different ASAs.

I. Code-Sharing under International Aviation Law

Under International Aviation Law, Article 6 of the Convention on International Civil Aviation signed at Chicago on December 7, 1944 ("Chicago Convention") states that:

Article 6 of the Chicago Convention is widely considered the basis for providing the framework within which countries enter into, negotiate and enter into bilateral ASA's governing the terms of air services and traffic between two nations. However, there is significant disagreement even today on how code sharing is to be dealt with under the aegis of Chicago Convention. Broadly speaking there appear to be two viewpoints in this regard. While the first viewpoint posits that code-sharing does not require any prior authorization from the State affected by the code-shared service, the second views code-sharing as a form of indirect market access, which requires prior authorization based on underlying traffic rights.

These abovementioned views also appear to be recognized by the International Civil Aviation Organization ("ICAO") template for ASA's with three main approaches to code-sharing being prescribed:

1. Traditional Approach: Under the traditional approach, the ASAs executed between countries implicitly deal with code-sharing arrangements but rarely have a specific provision concerning the subject. The arrangements are either approved by the concerned aeronautical authorities of a country on a case-by-case basis or under a memorandum of understanding that may be executed between two countries. To that extent, the traditional approach provides for significant deference to regulatory authorities in terms of approval of code sharing arrangements.
2. Liberalized Approach: The liberalized approach discourages the aeronautical authorities of an operating airline from withholding codeshare approval on the basis that the operating airline does not have the rights from that Party to carry traffic under the code of the designated airline of the marketing airline. This approach also includes cooperative/code-sharing agreements with third country airlines and surface providers.
3. Transitional Approach: Under the transitional approach a code-sharing arrangement may be limited to designated airlines, specific route or a specific number of flights as particularly specified under the ASAs of the state of registration of the Operating Airline. It should be noted that the transitional approach is effectively a hybrid of the traditional and liberalized approach whereby permission for code sharing is granted under the respective ASAs, however the aeronautical authorities of the respective countries tend to retain some degree of discretion in approval of the same.

The template ASA also recognizes that the appropriate national authority may enforce an optional filing requirement which would serve as a means for the aeronautical authorities to verify that all airlines have the appropriate authority and meet requirements applied to such arrangements¹. However, the common approach adopted by most countries is to negotiate and incorporate the right into the relevant ASA.

Basis our review of various ASAs, it appears that the countries that have adopted the liberalised approach or the transitional approach with respect to code-sharing generally include the following types of clauses in their ASA:

We further note that in certain cases, under the transitional approach, countries will adopt the language prescribed under liberalized approach provided above but will include appropriate modifications. This would include, whether or not to include a right of a third country to access the markets of a party, instead this may be a negotiated position and may or may not be included in the ASA between two countries. An example of such a clause is as follows:

II. Code-Sharing under Indian Aviation Law

Under India's National Civil Aviation Policy, 2016 ("NCAP") released by the Ministry of Civil Aviation ("MOCA"):

The NCAP also provides:

Further, under the Guidelines for Grant of Permission of Indian Air Transport Undertakings for Operation of Scheduled International Air Transport Services dated April 19, 2022² ("Guidelines") as released by the Director General of Civil Aviation ("DGCA"):

From the above, it appears that India has adopted the liberalised approach by way of (a) addressing the right to code-share in the relevant ASA; and (b) not requiring prior authorization from the State while also incorporating a prior intimation requirement on the designated carriers of India to the Ministry of Civil Aviation and DGCA. However, in practice, intimation to the DGCA under discussed under (b) is effectively an approval procedure as the flight schedules are required to be submitted and thereafter approved by the DGCA. Moreover, even the open skies agreements are limited to SAARC countries or countries with territories located beyond a 5000 Km radius from New Delhi.

As such, the code sharing approval requirements from DGCA and restrictions on open skies agreement appear to contradict the liberalised approach that appears to be outlined and indicated in the NCAP as discussed above. To that extent, it would be accurate to say that India primarily adopts a transitional approach.

III. Conflicting ASA's

From a domestic policy perspective one of the key issues that arises when a country enters into different ASAs with countries where some are restrictive, and others are liberal in nature vis-à-vis code-sharing.

For example: Country A may enter into an ASA with Country B ("ASA -1") which allows code-sharing arrangements with:

1. an airline or airlines of either Party;
2. an airline or airlines of a third country; and
3. a surface transportation provider of any country,

However, Country A may also have entered into an ASA with Country C ("ASA-2") which does not specifically permit third country code-sharing unlike ASA 1. In this regard, would a marketing carrier of Country B, be permitted to enter into third party code-sharing with a designated operator of Country A for flights operated in between Country A and Country C?

In cases where either Country A is India the answer is likely to be no.

This position is primarily supported by 2 main points:

1. the Guidelines stipulate that code-sharing is required to be governed by ASAs between the relevant countries. As such where the ASA's do not permit or allow third country code-sharing the DGCA would not have the power to permit the same.
2. Contracting countries of the ASA need to be expressly authorized under a specific provision of an ASA to enable them to enter into a code-share arrangement with third countries as it is the ASA which directly governs the flight operations between the two countries which are operating the flights. In permitting any code-share schedule between India and another international point of call, the aviation authority will primarily consider the provisions of the ASA which directly governs the two countries which are operating the flights and not the ASA with the third country which is the code sharing partner on such route. This discretion of the aviation authority is also supported by Article 6 of the Chicago Convention which seeks to provide a contracting state the right to authorize or permit scheduled international air service operated over or into the territory of such contracting state.

IV. Conclusion

In summary, while code-sharing between airlines across different countries is largely provided for under the ASA governing the various freedoms of air entered into between two countries, there is still a significant amount of discretion given to regulatory authorities on this front. To that extent, in so far as the Indian aviation law is concerned, any third-party code sharing between two countries for flights through another country would have to be permitted under the ASA that governs the operating flight between the two countries.

Further, while India in principle, strives to move towards a more liberalized open skies policy, in practice India in many ways continues to adopt a restrictive, protectionist approach towards access to their airspace. This approach may not be entirely unfavorable for India. ASAs are typically diplomatic arrangements which are made in exchange of trade related deals with other countries, and India being a huge market for air services is an attractive destination for foreign airlines to operate to and from.

While several ASAs entered into by India, especially with the gulf nations have been severely criticized for being favorable to such nations, India is reluctant to reopening negotiations on such existing ASAs to avoid a diplomatic row and also to negotiate a fully open skies agreement in order to protect Indian carriers from predatory practices of foreign airlines. India's transitions approach of cherry picking which freedoms of air rights to agree with which states, therefore appears to be in the interest of balancing its diplomatic interests with its airspace sovereignty.

Footnotes

1. Article 25 (Codesharing/ Cooperative Arrangements), Page 60, ICAO Template Air Services Agreement (Available at https://www.icao.int/Meetings/AMC/MA/ICAN2009/templateairservicesagreements.pdf)

2. AIC No. 10/2022 dated April 19, 2022, (File No. DGCA - 13005/19/2022-IR)

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.