Delta Air Lines and
Virgin Atlantic Airways plan by the end of next year to launch a "fully
integrated" transatlantic joint venture, through which they would share
revenue, align corporate sales and coordinate schedules. Pending regulatory
approvals, the agreement positions Delta to fill a significant gap in its
network for corporate travelers and win new business in the lucrative New
As part of the deal,
Delta paid Singapore Airlines $360 million for its 49 percent stake in Virgin
Atlantic. With its investment, Delta picks up three seats on Virgin Atlantic's
board of directors.
Boardwalk to win," according to Buckingham Research Group senior vice
president of Airline Equity Research Daniel McKenzie. "The move gives
Delta access to a critical game piece in the corporate travel arena—London
While Delta during
the past year has claimed a growing share of corporate business, recently topped
BTN's annual air survey and posted above
average corporate revenue gains, "the lack of access to London Heathrow
has been an impediment for Delta to winning the lucrative business" on the
New York-London market, according to McKenzie.
holds what he called "a mere three" Heathrow slots accommodating an "inadequate"
number of frequencies to properly serve corporate clients on the route. The
magic number of daily frequencies to attract meaningful corporate business is
eight, according to McKenzie, and Virgin brings six in aggregate from London to
Newark and JFK.
carriers would hold 36 percent of the market between Heathrow and the New York
area, "enough to be relevant and walk away with more corporate travel
accounts presumably at AMR's expense," according to McKenzie. "An
agreement with Virgin not only remedies a shortfall needed to win more
corporate contracts, but the move positions Delta to also walk away with more
business to Latin America, Asia and of course domestically."
Corporate Sales Would Align 'Rapidly'
Delta and Virgin Atlantic
plan to align transatlantic corporate and travel agency sales and provide reciprocal
frequent flyer benefits and lounge access.
chief commercial officer Julie Southern during a Tuesday press conference in
New York said the carriers' plans for joint corporate agreements "are not
fleshed out yet" as they wait on the U.S. Department of Transportation to
grant antitrust immunity. "It's something for further down the road,"
Still, Delta CEO
Richard Anderson said that should immunity be granted, the carriers quickly would
launch new corporate programs. Given its history of antitrust-immune joint
ventures, Delta has "developed a good construct and a good capability for
sales cooperation," Anderson said. "We have a really good methodology
for being able to include Virgin almost instantaneously [upon approval]. It
takes time obviously to go through every corporate agreement, but we have a
construct and a methodology to put them in our corporate agreements rapidly.
That's where a lot of the benefit will come fairly quickly.
have large corporate agreements with all Fortune
100 corporations in the U.S.," Anderson continued. "We will
immediately add Virgin and some of that can actually be done before we receive
antitrust immunity on a more limited cooperation basis."
Noting that Delta
has $10 billion in annual corporate revenue and relationships with key
U.S.-based corporations, Anderson said "one of the great benefits we can
bring to Virgin is significant corporate traffic flows."
Delta has a similar
joint venture with Virgin Australia between the United States and Australia, as
well as the larger transatlantic antitrust-immune joint venture with Air
France-KLM and Alitalia.
transatlantic JVs would remain separate, but officials did not dismiss potential
coordination. Southern added that Virgin "in the next few months" could
reach a decision on whether to become a member of Delta's SkyTeam alliance.
Competing With AA-BA
Combined, Delta and
Virgin Atlantic would be "number two" in the U.S.-U.K. market with a
nearly 25 percent market share, second to the immunized joint venture between
American Airlines and British Airways, which accounts for 60 percent of the
market, Anderson said. He expressed confidence that regulators on both sides of
the Atlantic would approve the joint venture as a counterweight to that
partnership allows both carriers to offer a greatly expanded network at
Heathrow and to overcome slot constraints, which have limited the growth and
competitive capability of both airlines," according to a joint
announcement from Delta and Virgin. "The two carriers will operate a total
of 31 peak-day roundtrip flights between the U.K. and North America, 23 of
which operate at London Heathrow."
While Delta and
Virgin both fly from JFK's Terminal 4, Southern said co-location at Heathrow's
Terminal 3 is a possibility "over the coming years."
Despite speculation inflamed
by British Airways CEO Willie Walsh, Virgin founder Richard Branson and Delta's
Anderson dismissed the notion that that the Virgin brand would fade away.
Branson continues to hold the remaining 51 percent stake in Virgin Atlantic and
today told reporters that "I'm not going anywhere."