Delta and Virgin Atlantic tout alliance as good for competition

By Kate Rice
flight attendants in NYCDelta and Virgin Atlantic Airways said today that their proposed joint venture would bring more competition to the world’s most lucrative aviation market, the transatlantic.

The airlines said that their top priority would be to cooperate on codesharing in the U.S. and the U.K. domestic markets and to establish reciprocity with frequent-flyer programs so members can earn and burn miles on both airlines.

The proposed joint venture means that Delta and Virgin Atlantic, combined, will be the No. 2 operator between the U.S. and the U.K., with 24-25% of the market.

British Airways and American Airlines, combined, have a 60% market share of the U.S-U.K. market.

London Heathrow is aviation’s golden egg; Delta CEO Richard Anderson said at a press conference today that eight of the largest city pairs in the world are out of Heathrow.

Anderson said that Delta will be lifting its own brand by associating with Virgin and that the joint venture is essential to Delta’s strategy for the next decade. He said that Virgin has provided the preeminent transatlantic product.

Julie Southern, Virgin Atlantic’s chief commercial officer, said the numbers support the strength of Virgin’s brand. It has 3% of the slots, 10% of the long-haul routes and 24% of the customers on the routes it flies out of Heathrow.

Anderson said that Delta offers complementary strengths, pointing out that it has made huge investments in its own brand and service. That includes building a new $1.4 billion facility at New York ‘s JFK Terminal 4, where Virgin and Delta both happen to be located. It is also building a new hub at New York’s La Guardia Airport.

Southern said the joint venture is the logical next step for Virgin to build its business because it will benefit from Delta’s domestic route network, and Delta can use the Virgin connection to feed into more markets in the U.K. and Europe.

This means that once Delta opens the new section of the JFK terminal, it will be able to coordinate all of the departures with Virgin Atlantic. Southern pointed out that Virgin just recently upgraded its Clubhouse at JFK, which she said will present customers of both airlines with a “fantastic” opportunity to experience each other’s product.

In Heathrow, Southern said that the two airlines hope to relocate Delta to terminal T3, where Virgin is now located. Delta is currently in T4.

Richard AndersonAnderson called the joint venture with Virgin Atlantic “positive” for Delta’s long-term partnership in Europe with Air France/KLM and Alitalia, all of which, he said, have expressed “strong support” for the transaction.

He added: “We will work with them over time to make certain all is well coordinated between the two joint ventures.”

Anderson said the U.S.-Heathrow market is almost $200 billion a year and almost three times the size of the next closest market. The joint venture means Delta will have a strong position in London and in Paris.

He added that he is confident about clearing regulatory hurdles. He noted that the U.S. Justice Department and the European Union approved the antitrust-immune joint venture between American Airlines and British Airways, which has 60% market share of the U.S.-U.K. market.

The joint venture would operate with both airlines sharing the costs and revenues from U.S.-U.K. flights. Delta and Virgin Atlantic anticipate launching their joint venture in late 2013.

“As you know, Virgin is one of the scrappiest competitors in the marketplace, and when you match that with a great product like Delta has, consumers will be the winner with an alternative to the 60% [BA-American] joint venture,” he said. “Now we will have real competition, and competition makes companies better.”

Delta is buying Singapore Airlines’ 49% stake in Virgin Atlantic for $360 million. Anderson and Southern said that Singapore’s investment in Virgin made sense a dozen years ago when it was looking west.

Anderson, Southern and Branson pointed out that Singapore now has a long-time strategic partnership with Virgin Australia, meaning Singapore is using Virgin Australia to feed its Singapore hub.

Follow Kate Rice on Twitter @krtravelweekly. 
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