Delta, Air France/KLM and Virgin Atlantic plan to invest in each other, and in a broader joint venture to increase their share of the critical trans-Atlantic market in the face of competition from both other major alliances and discounters.
The joint venture, if approved, will allow all four carriers to coordinate flights and fares, and, more importantly, better manage their hubs to handle through passengers. The latter has been an issue for the existing Delta/Virgin joint venture; it has been based mainly at Heathrow, where the BritishAir/American Airlines venture is the dominant carrier.
Delta/Virgin has been hampered in booking passengers headed further into Europe by the lack of slots. The new combination will add Paris and Amsterdam as transfer points, and give AF/KLM better access to British markets.
Under the proposal, Delta is buying 10% of its long-term partner AF/KLM for $438 million. AF/KLM is a merger of the French and Dutch national carriers, but the two operate as separate brands. Delta already owns 49% of Virgin; AF/KLM will now buy 31% of the company, with Richard Branson, its founder, holding the remaining 20%. China Eastern Airlines, of which Delta owns 3.2% is also buying 10% of AF/KLM.
There are some hurdles ahead: regulators must approve anti-trust exemption for the deal, and there must be compliance with the UK’s laws on foreign ownership of airlines. Perhaps that is the reason why Branson will remain as chairman, and Virgin emphasized that it would continue to be an independent brand within the group.
Next question: With all the other partners core members of the Sky Team alliance, will Virgin now join the group, as has long been rumored?
