Flightlines 5: The Role of Subsidiaries in Airline Operations

Exploring the strategic and operational reasons behind major airlines' regional subsidiaries and their unique branding choices.

As the industry recovers from the CrowdStrike/Microsoft upgrade debacle that disrupted the primary systems of many of the country’s largest carriers, Flightlines returns this week with an in-depth look at the subsidiary structures many airlines adopt for their regional branding. We decided to take a break from discussing the latest news and instead delve into this intriguing topic.

Air Dolomiti Embraer landing at Frankfurt Airport. Photo by Andrew Dawes on Unsplash

Some elements of the subsidiary business model make sense, while others are less obvious. Although these companies are often wholly owned, they may have unique branding separate from their parent company. This subsidiary branding can appear on ticketing materials and, in some cases, on the aircraft’s livery. This week, we aim to answer why, starting with a few well-known examples.

Editor’s note

Flightlines is based in Raleigh, with Raleigh-Durham International Airport (RDU) being the largest in the area. While RDU is a significant regional airport with excellent carrier service compared to its peer municipalities, it is not a hub for any airline. As such, many flights to and from larger markets are operated by the major airline’s branded subsidiaries.

Tomorrow morning, just after 9:00, American flight 4475 will arrive at RDU from LaGuardia Airport (LGA) on an Embraer 175. Though the Embraer is a fine aircraft, it is one of the smaller in American’s fleet. This aircraft choice for the route from New York City to Raleigh reflects the understandably lesser demand than a major route, such as New York to Chicago. LGA is one of American’s hubs, almost exclusively serving domestic flights. On many of these routes to smaller markets, they have outsourced the flight to their subsidiary, American Eagle, as is the case with flight 4475.

American Eagle does not look dramatically different from the American Airlines flights typically flown in larger Boeing or Airbus aircraft, as they share similar red, white, and blue American flag-themed livery. This was a purposeful choice, as American Eagle itself comprises six smaller airlines (Envoy, Piedmont, PSA, etc.) and is meant to provide branding clarity to passengers—associating the flight with American while allowing the smaller carriers to operate, own, and maintain the smaller aircraft more appropriate for the lower-traveled regional routes they serve.

The American Airlines - American Eagle relationship is a legacy of the operating structure of the airline industry before deregulation when smaller carriers would feed passengers to flights operated by the larger carriers out of major markets. This mapped well to the hub-and-spoke model that many major airlines, like American, employ for their domestic coverage today. American contracts with the smaller airlines under the American Eagle brand to provide service from the spokes to the hubs.

Another reason American chooses to alter (but only slightly) the branding of American Eagle flights is to manage passenger expectations when serving regional routes with smaller, less-equipped aircraft. It’s a way of saying, “Hey, it’s not real American Airlines, so don’t expect too much,” preparing passengers for an assumed lower level of service. In the worst cases, it also gives the airline an element of reputation protection in the event of an accident—they can suggest that the subsidiary was the cause of the failure and ultimately shed the brand, replacing it with another while maintaining the integrity of their operational core. “American Airlines has a better record of safety and service than our peers,” they might argue.

Other examples of the subsidiary model can be seen in the relationships between Delta Air Lines and Delta Connection, United Airlines and United Express, and Lufthansa and Lufthansa Regional, which includes the smaller regional airlines CityLine and Air Dolomiti. Delta Connection flights are branded under the Delta name but operated by smaller regional airlines like Endeavor Air. The unique branding, though connected to Delta, helps differentiate service levels and manage customer expectations about aircraft size and service scope. Similarly, United Express flights are branded under the United name, but the differentiation helps signal to customers the type of service and aircraft they will be flying on.

Lufthansa maintains a strong core brand identity but caters to regional preferences with airlines like CityLine, which offers flights to smaller cities in Europe, and Air Dolomiti, which offers flights to Italian destinations from Frankfurt and Munich. Lufthansa maintains its core brand identity for more valuable long-haul international flights.

The use of subsidiary branding by major airlines is a strategic approach that tries to balance operational efficiency with customer perception. By leveraging regional partners, airlines can extend their reach to smaller markets while maintaining a cohesive brand identity. This helps to optimize their route structures but also ensures that passengers have an understanding of the experience to expect, regardless of the size of the aircraft or the distance traveled. As the industry continues to evolve, these subsidiary relationships will remain a crucial component of how airlines operate and compete in a dynamic market.

In the news

The latest and most impactful stories shaping the world of commercial aviation this week.

July 28th, 2024

• Delta continues cancelling flights as crew-tracking tools falter

• Why Japan Airlines Chose GEnx For Its New Boeing 787-9 Dreamliners

• A Look At The Expected Private Jet Activity Ahead Of The 2024 Summer Olympics

July 27th, 2024

• JetBlue Sues Florida Department Of Revenue Days After Announcing Tallahassee Exit

• American, Allegiant Cut More Austin Routes

July 26th, 2024

• Why The Olympics Are Bad News For Airlines' Profit Margins

• American Airlines’ cargo revenue falls 1.3% 

• WestJet Launches Daily Dash 8-Q400s Between Seattle And Kelowna

• JetBlue adds new service to Manchester, NH, expands Florida routes 

• ATR places a new ATR 72-600 at Japan’s JCAS Airways

July 25th, 2024

• Southwest Airlines Redeye Flights Coming… Finally!

• Hong Kong International cargo volumes continue to soar

• Southwest Airlines Adding Assigned & Premium Seating: End Of An Era

• Frankfurt Airport Suspends Flight Operations As “Activists” Glue Themselves On The Runway

July 24th, 2024

• Air Tahiti orders four additional ATR 72-600s

• United to drop service to Fukuoka, leaving Japanese city unserved by Big 3 carriers

• Southwest Airlines Faces FAA Audit Following Series Of Close Call Incidents

• Virgin Atlantic cuts sole China route

July 23rd, 2024

• Delta under DOT investigation as meltdown hits Day 5, and 5,000 cancellations

• Macquarie AirFinance Orders 20 More 737 MAX At Farnborough Airshow

• JetBlue Offering To Pay Pilots Not To Fly

• Virgin Atlantic Orders More Airbus A330-900neos

• American Airlines sees mango volumes takeoff

July 22nd, 2024

• Luxair Orders Up To Four Boeing 737 MAX 10s

• Korean Air Boosts Boeing With Order Of 20 777X And 30 787 Dreamliners At Farnborough Airshow

• Cathay’s cargo volumes rise 12% in June

• Virgin Australia Cuts Boeing 737 MAX Flights To Tokyo Haneda

• Delta Resumes Las Vegas – Orange County Service in Jan 2025

• Ryanair Reports 46% Drop In Quarterly Profit & Predicts Lower Summer Fares

July 21st, 2024

• FAA investigating Southwest low approach in Tampa

✈

Thank you for reading. Flightlines looks forward to bringing you more insights and updates in the world of commercial aviation next week.

Until then, safe travels and happy flying.