The United States has cleared the tentative Delta Joint Airline Venture between Delta, Air France & Virgin Atlantic. That would take the fight to American Airlines, British Airways, and Iberia much closer to an equally fair fight.
Washington – U.S. Department of Transportation Secretary Elaine Chao has tentatively given Delta, Air France-KLM, and Virgin Group’s Virgin Atlantic an opportunity for a fair fight with rivals American Airlines, British Airlines & Iberia.
Now, what’s a Joint Venture?
A joint venture is the highest form of cooperation among airlines. I would describe it as a “virtual merger” between airlines. A joint venture acts as if they have become one large airline.
What do I mean by “virtual airline”?
Well, they cooperate with schedules, aircraft types, personnel, and in pricing. They share their revenues among themselves on the particular routes in which the authorities have agreed.
In the case of Delta’s joint airline venture, Delta, Air France-KLM, and Virgin Atlantic would become that “virtual airline”.
As always that brings the good, the bad, and the ugly
Focusing on Deltas’ joint airline venture:
More flight options and schedules. All three airlines would mainly operate as one airline. Also, the opportunity to redeem miles on the airlines mentioned seamlessly.
As all three airlines operated as one, it would mean higher prices and not many deals for visitors crossing the pond. So much for deals on London fares through Air France via Charles de Gaulle or Paris Orly. One can say goodbye to elastic prices.
Well, did Transatlantic travel need more metal and aircraft traveling to the United Kingdom? I already wrote a piece on how a Heathrow third runway is an existential fight for survival, which you can read here.
Which routes would the Joint Venture cover for Delta, Air France-KLM & Virgin Atlantic?
The grand prize for Delta and Virgin Atlantic was the British market. However, they got more than that, as they got a parallel agreement with Air France-KLM under one venture. It includes revenue sharing on both sides of the Atlantic.
Even if your flying started in Europe, these three airlines technically had a “virtual merger” as Delta already has a stake in the two joint venture airlines:
- Delta currently has a 49% equity in Virgin Atlantic.
- Air France-KLM, in turn, will have a 31% stake in Virgin Atlantic.
- Furthermore, Delta has an 8.8% stake in Air France-KLM, with the French and Dutch states owning 14% each, and China Eastern (another Joint Venture airliner) holding 8.8%.
- The remaining 50.1% is on the stock market.
Even if Delta wanted to drive out Virgin Atlantic’s Sir Richard Branson, they couldn’t buy a stock! This is due to foreign ownership laws.
However, a caveat in the buying and selling airline stake is that Air France-KLM can purchase an equity stake in Virgin Atlantic. Air France-KLM, in turn, can then sell that same stake to Delta.
How about Alitalia & Czech Airlines?
The Joint Venture does not include the bankrupt Italian carrier Alitalia and Central European Carrier Czech Airlines.
An agreement with both airlines has been reached with Delta & Air France-KLM. However, no deal has yet been reached with Virgin Atlantic. The addition of Virgin Atlantic would constitute more than 25% of the Transatlantic traffic. This could be perceived as a questionable anti-trust move in Europe and the U.S.
What can we expect for the next year in terms of capacity and routes?
Delta announced that the airline would increase its U.S. to U.K. capacity by 15% next year. The airline would also fly the Boeing 767-400 and the Airbus A350 to Europe. Delta’s flights will operate from JFK (New York Kennedy), BOS (Boston Logan), and LAX (Los Angeles).
The Oneworld Alliance
Delta’s joint airline venture is trying to replicate the dominance Oneworld has on the New York-London route. Their route dominates the market with approximate eight daily flights just to London’s Heathrow Airport!
That is without counting on their partners and the additional routes they serve to London Gatwick, London City Airport, and to Newark. My sixth sense tells me that for a leisure product like Virgin Atlantic to pick up the slack, they may need help from Delta.
In March of next year, Virgin will bolster service from Los Angeles (LAX) and Seattle-Tacoma. At LAX there will be three weekly flights added, and from Sea-Tac, four weekly flights will be added.
Delta’s plan for spring of 2020
Delta’s joint airline venture isn’t the only exciting thing happening with the airline. In spring of 2020 Delta plans to match the eight daily flights (with those of Oneworld). Three daily flights will be flown by Delta, with five daily flights by Virgin Atlantic, between JFK and London, for a total of eight.
Delta’s Boeing 767-400 retrofit seating configuration
Delta’s winter schedule will utilize the Boeing 767-400, retrofit with a 33 Delta One seating 1-2-1 configuration, 20 Delta Premium Select seats in a 2-2-2 configuration, 28 seats in Delta Comfort+, and 156 seats in the main cabin.
Is the fight really on in New York?
Delta is returning to Gatwick as well as increasing flights from JFK and Logan (Boston) starting in summer 2020.
I believe Delta wants to scare JetBlue out of Transatlantic travel. They want to do that by bringing metal to their side to intimidate the real kings of Transatlantic travel, which is American Airlines & IAG.
If the objective is to scare the kings of Transatlantic travel, they’d better throw the house through the kitchen sink. The Joint Venture permits American/IAG to bring down the gauntlet on their frequency and price as quickly as inverting the yield curve.
United’s Star Alliance brought on the reign of fire
United thought that showcasing Newark as their star would make everyone change “to the friendly skies.” The airline previously sold their 26 JFK slots to Delta. However, they soon discovered that having all their flights going out of Newark Airport was not the winning combination they were looking for.
With Jeff Smisek as United’s CEO, it was a great lesson taught. Like in real estate, location is everything. Although their product was better, staying at JFK would have kept them closer to the competition.
Delta and Virgin Atlantic improved their position with their JFK-product and location.
United CEO Smisek had made a tactical error by pulling out of JFK. However, United President Scott Kirby wanted to make things right by returning to JFK. Delta had effectively removed a competitor from JFK by buying United’s gates.
Although Delta’s offerings aren’t on a par with American, British and Iberia the remaining airlines at JFK are going head-on for the bread and butter of Transatlantic flights.