Virgin-Delta Air Venture to Stand Alone With No SkyTeam Link

Delta Air Lines Inc. (DAL) said its new partner Virgin Atlantic Airways Ltd. doesn’t plan to join the SkyTeam group and that their joint venture will remain separate from that between the U.S. company and Air France-KLM Group. (AF)

Virgin said Dec. 11 it was looking at joining SkyTeam and might reach a decision in a matter of months after Delta bought 49 percent of its stock. Alliance membership helps carriers boost marketing efforts through joint ticket sales, shared lounge access and the combination of frequent-flier programs.

Delta and Virgin are working with regulators on both sides of the Atlantic and anticipate that approvals for their venture will be received later this year, possibly in the fall, with the cost- and revenue-sharing pact to be activated immediately after that, said Ed Bastian, the Atlanta-based company’s president.

“At some point down the road SkyTeam will come up, and I’m certain that over time it will be viewed favorably, but right now that’s not the priority,” Bastian said today. “Their main priority is addressing their financial needs in respect of the losses they’ve been posting and getting the JV up and running.”

Delta paid Singapore Airlines Ltd. (SIA) $360 million for the Virgin stake and needs antitrust immunity to coordinate pricing and schedules on 31 daily trans-Atlantic flights. Bastian said that while the application includes coordinated timetabling with Air France-KLM and Rome-based Alitalia SpA, Delta will have two separate joint ventures for the U.K. and continental Europe.

Heathrow Boost

“We’ve made the investment in Virgin Atlantic so it’s not anticipated that it would ever be enlarged,” Bastian said at a press briefing in London. “There is a lot going on with respect to putting together the JV and that’s where their focus is.”

The Virgin deal gives Delta a bigger platform at London Heathrow airport, Europe’s busiest and the home base for British Airways (IAG), the top carrier in North Atlantic corporate travel.

The airlines will control about 25 percent of the U.S.-U.K. market, compared with the 60 percent share held by BA and American Airlines, which already have antitrust immunity, Delta Chief Executive Officer Richard Anderson said in December.

By linking with Virgin, Delta is targeting North Atlantic flights that generate roughly one-quarter of all global revenue from premium fares, more than twice as much as Pacific routes, according to International Air Transport Association figures.

“There have been a lot of questions as to whether the Virgin Atlantic brand will stay in the market,” Bastian said. “Rest assured it is staying in the market. There is no question about that.”

‘No Secret’

Delta and Virgin both offer forward-facing, flat-bed seats with direct aisle access, and thus a consistent premium product, Bastian said, in contrast with BA and American.

For Virgin, still majority-owned by U.K. billionaire Richard Branson, the Delta deal marked the end of a go-it-alone strategy for a carrier squeezed by high fuel prices, a sluggish economy and increased competition as rivals consolidate.

Virgin has imposed a salary freeze and has delayed adding bigger planes while cutting unprofitable routes to destinations including Nairobi in Kenya, and Kingston, Jamaica. Its loss widened to 135 million pounds ($203 million) in the year to Feb. 28 from 80.2 million pounds a year earlier, the Sunday Times reported March 10, citing an internal company memo.

“We were fully aware of the current-year losses,” Bastian said. “Virgin’s had a difficult couple years, that’s no secret. One of the things that’s dramatically different between us and Singapore is the relevance in the market place. There are many more commercial opportunities that we will be able to produce.”

While Bastian said that “at some point in time SkyTeam will need to show Virgin why it’s important to join the alliance,” he added that one-to-one joint ventures have become a focus for carriers seeking a deeper level of cooperation on key routes.

“The alliances have a lot of substance so I don’t predict you’re going to wake up one morning and find them imploding, but alliances have to prove their worth,” he said. “Delta’s approach has been to create really strong bilateral relationships.”

To contact the reporter on this story: Kari Lundgren in London at klundgren2@bloomberg.net

To contact the editor responsible for this story: Benedikt Kammel at bkammel@bloomberg.net

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