Delta, Air France-KLM kick off joint venture

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Delta and Air France-KLM revealed details last week of their enhanced long-term joint venture, under which they will share revenue on some 100 daily transatlantic roundtrips, accounting for some 50,000 seats.

While the agreement was anticipated, the scope of the deal raised industry eyebrows. And, analysts say, the joint-venture structure is sure to provide a template for airline agreements to come.

"The J.V. is a big deal in the sense that it's the next step in the evolution of airline alliances," said LECG consultant Darin Lee.

He added that "it's a positive for consumers -- as the DOT has also concluded -- since the ability to structure the J.V. in a metal-neutral way incentivizes partners to cooperate in ways that are more convenient for passengers."

The term "metal-neutral" means the companies have a stake in the success of all joint-venture flights, regardless of which one actually operates it, because they all benefit by pooling the revenue.

But some analysts warn that the size and scope of the venture could make the airline partners so large they could start dictating terms to corporations and intermediaries.

The venture is the culmination of evolving relationships among carriers that are already members of SkyTeam. Delta, which is absorbing Northwest, signed a joint venture pact with Air France in 2007. Also, Air France has acquired KLM, which has a joint venture deal with Northwest dating to 1997.

"This joint venture formalizes the relationship the airlines already had," said analyst Vaughn Cordle of AirlineForecasts. "But this also covers a lot more territory. They can now eliminate a lot of overlapping function. They can get all the positive impacts of a merger."

And that promises to reset the balance on vital transatlantic routes, prompting carriers in the Oneworld and Star groups to pursue a similar strategy.

Delta and Air France-KLM will cooperate on routes between North America and Africa, the Middle East and India, as well as on flights between Europe and several countries in Latin America.

The joint venture represents about 25% of total transatlantic capacity, with annual revenue estimated at $12 billion.

The network is structured around six main hubs (Amsterdam, Atlanta, Detroit, Minneapolis, New York Kennedy and Paris) and includes all flights between North America and Europe; between Amsterdam and India; and between North America and Tahiti.

Wherever traffic rights permit, and notably between the U.S. and the E.U., flights will be mutually codeshared under three carrier names as the Northwest name is phased out.

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