Delta-Air France-KLM Complete Transition To Joint Transatlantic Contracts

SkyTeam partners Delta Air Lines and Air France-KLM completely transitioned all transatlantic corporate and agency clients, totaling some 5,000 deals, to joint-venture contracts, according to Delta officials. Corporate agreements involving Italy's Alitalia, which last year joined the antitrust-immune alliance, still are being transitioned.

"Every contract has been fully converted to a JV contract, so it's metal-neutral for Delta and Air France-KLM," Delta vice president of global sales Steve Sear last month told BTN. "Customers now have one point of contact and one contract." The carriers completed the contract transitions late last year.

The airline partners also jointly planned a significant transatlantic capacity reduction effective after Labor Day, and more closely aligned fares and inflight products.

Featuring the first major transatlantic JV to gain approval from regulators, SkyTeam is ahead of its competitors in finalizing joint contracts. However, those competitors aren't far behind: The joint venture that includes United Airlines, Lufthansa and other Star Alliance carriers expect to complete joint contracts this year, and the more recent American Airlines-British Airways-Iberia JV also is converting accounts to joint deals.

"In the U.S. and Canada, it was a very smooth transition for the JV to get all the contracts on to Prism," Sear said, referring to the Prism Group's airline corporate sales system. "In Europe, the majority of the contracts are on the Air France system, so we went with more of a regionalization strategy in order for us to get to market quicker for our customers."

'Not Just A Conglomeration'

Meanwhile, the announced 9 percent cut in combined transatlantic capacity across Delta, Air France-KLM and Alitalia operations "reflects an evolution of where we are in the running of the joint venture," said Delta senior vice president of Europe, the Middle East and Africa Perry Cantarutti, "and running it not just as a conglomeration of four networks but as its own business."

Deutsche Bank analyst Michael Linenberg agreed, calling the cuts "a sign that the airline partners are flexible despite a complex collaboration of operations." The plan is a reversal of previous guidance that called for up to 8 percent combined growth.

Delta alone plans to remove up to 12 percent of its post-Labor Day transatlantic capacity, according to a presentation last month by president Ed Bastian. Among those capacity cuts, Delta plans to suspend services between New York JFK and Stockholm, Copenhagen, Manchester and Berlin; between Philadelphia and Paris Charles De Gaulle; and between Atlanta and Moscow. Those services "may come back for summer 2012," according to a spokesperson.

Despite the cuts, overall business travel demand, including premium demand, has been strong in the transatlantic market, Delta officials said.

Harmonizing Products

In February, Delta, KLM and Air France began taking "the first steps toward fare class alignment, which is a strategic initiative to align fare classes for published and private fares." Though some fare classes already have been aligned, "subsequent phases of Delta's booking class alignment will be made over the remaining part of the year and into 2012," Delta noted on its website for travel agencies.

In other signs of product harmonization, Delta this month expects to complete its rollout of Economy Comfort seats, which account for the "first few rows" of the coach cabin on 160 international aircraft. For an additional $80 to $160 each way, the seats offer four more inches of legroom and 50 percent more recline than standard international economy seats.

"Early results are impressive" for premium-economy bookings, Cantarutti said, noting the product is "fashioned after the KLM product" of the same name. "Clearly there is a customer segment out there that does not want to—by either desire or policy—buy a business-class seat, but at the same time they travel enough and want something more than a typical economy seat," he said. "This is a nice middle ground. Flights across the Atlantic are a duration of six to eight hours, so it's a very relevant product for the transatlantic."

Meanwhile, Air France-KLM and Alitalia in March adopted Delta's SkyBonus loyalty program, through which small and midsize companies in North America can earn travel and upgrades.