Delta, Virgin look to challenge mighty BA-AA

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The Virgin Atlantic-Delta Air Lines joint venture took another step forward last week when the two carriers filed jointly with the U.S. Department of Transportation (DOT) to form a transatlantic joint venture with antitrust immunity.

If approved, it would give each carrier crucial competitive advantages. Delta would get a much-needed presence at Heathrow, thanks to Virgin Atlantic’s presence there.

Separately, Virgin Atlantic would get Delta’s U.S. feed. That, combined with Little Red, Virgin’s fledgling domestic network in the U.K., would mean that Virgin Atlantic could finally, after 30 years of trying, start to grow by connecting passengers.

“This is a big deal for Delta,” said Darryl Jenkins, aviation analyst with the Aviation Consulting Group. He noted that the New York-London routes are among the most lucrative in the world, bigger than the next three largest European routes combined.

American Airlines and British Airways, members of the Oneworld alliance, dominate the North Atlantic, with 60% of the U.S.-U.K. market.

If the joint venture is approved, Delta and Virgin Atlantic will have a combined market share of 24% to 25%, mounting a much stronger challenge to the BA-AA alliance.

Additionally, Delta is investing $360 million to acquire the 49% stake in Virgin Atlantic currently held by Singapore Airlines.

Craig Kreeger, Virgin’s new CEO, said last week that one of Virgin Atlantic’s ongoing challenges has been its inability to have connecting opportunities.

Little Red and the Delta joint venture will fill that gap, he said.

He added that the airlines expect the deal will win DOT approval by year’s end.

The deal also benefits an existing joint venture that Delta has with Air France-KLM and Alitalia. Those airlines are listed as co-applicants on the Virgin-Delta DOT filing, which describes the Delta-Virgin joint venture as being “complementary” to the existing joint venture.

Because Air France-KLM and Alitalia have a “limited presence in the U.K. generally, and in London in particular, Virgin Atlantic is better able to support Delta’s U.S.-U.K. services against the larger and stronger AA/BA alliance.”

Although there is rampant speculation that Virgin Atlantic could join the Air France-KLM/Alitalia/Delta joint venture as well as the SkyTeam alliance, Virgin Atlantic is for the moment focusing only on the Delta deal.

Richard Branson, president of Virgin Atlantic, said at a news conference last week that a tie-in with the Air France-KLM/Alitalia/Delta joint venture “made sense” but that Virgin is currently focused on the Delta joint venture.

In the DOT filing, Virgin Atlantic stated that it is “evaluating” joining SkyTeam but that SkyTeam membership wouldn’t change the benefit that the Virgin-Delta deal would bring to the marketplace.

The pact would enable Delta and Virgin Atlantic to coordinate their transatlantic schedules and share revenue and costs on transatlantic flights. In the filing, the two airlines said they would also start direct service from Seattle to Heathrow.

The carriers said in their joint filing that Delta will have the opportunity to connect passengers to Little Red and that the Air France-KLM/Alitalia co-applicants would also reap benefits from the joint venture, especially on North America-U.K. regional routes served via Amsterdam and Paris.

Air France and KLM operate 70 daily flights to 13 cities in the U.K. via Amsterdam and Paris.

A Virgin official said that some aspects of the joint venture, such as reciprocal earn-and-burn of frequent flyer miles, could be available even before the expected DOT approval.

Follow Kate Rice on Twitter @krtravelweekly.

 

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