Interview: Delta's Frank Jahangir And Virgin Atlantic's Scott Davies On JV Development

Launched Jan. 1, 2014, the Delta Air Lines-Virgin Atlantic joint venture coalesced further this month as Virgin assumed responsibility for both partners' sales in the United Kingdom. The move replicates a similar arrangement in the rest of Europe, where another joint venture partner, Air France/KLM, since 2009 has handled sales for Delta. In the United States, Delta is taking the sales lead for all those carriers. BTN contributing editor Amon Cohen spoke to Frank Jahangir, Delta staff vice president of sales and affairs for EMEA and India, and Virgin U.K. general sales manager Scott Davies about the effect of their growing partnership on U.S.-U.K. corporate agreements.

Your joint venture is the most recent between the United States and the United Kingdom. Do you contend that it differs in any way from its competitors

Scott Davies: We are bringing more competition where arguably it is needed. On New York-London, which we fly nine times a day, we're the only JV with front-facing flat-bed seats, all with aisle access, in business class and shared airport terminals.

What about the agreements you are offering to corporate clients?

Frank Jahangir: We've come together as one voice when we speak to customers. With us, there is one person negotiating on behalf of all the partners. It's a very coordinated approach when the customer comes to us because we have agreed internally what the deal will be. No airline is going to come 'round the corner and suggest other elements to it. There aren't sidebar conversations taking place.

Davies: This is the deepest level of joint venture sharing that is legally possible—a profit-sharing venture. American Airlines/British Airways is a revenue venture. For us, all the attributable revenues are placed in the pot, as are all the associated costs, including operating costs. The risk and reward are shared equally.

But many corporate clients believe the only type of JV is a bad JV because they limit the number of suppliers in the marketplace.

Davies: We think we have become the most popular JV since we launched because we have introduced more competition into the U.K. market. Now we have combined strength to compete for share.

Jahangir: The corporate market was telling us it wanted more competition in the U.K. They say that, now we are here, it is giving them more choice, which neither Delta nor Virgin could have achieved separately. The pattern of being dominated by certain carriers is being broken. This is the first serious challenge on London-New York. And we are competing on our proposition. Our competitors have a business-class seat configuration that is badly out of date.

Are you seeing any changes in the nature of deals being agreed to with customers?

Davies: The deals are becoming more ambitious because we can provide more capacity. Customers are asking us to pitch for a larger share of their spend. What we have also started to see recently, partly in response to our JV, is that the other JVs are demanding clients give them all of their business or nothing. Before the JVs, airlines would be contracted as either a primary or a secondary carrier. Customers are asking, "Am I comfortable committing all my business to one carrier?"

Are you going to make all-or-nothing demands too?

Davies: Until now we haven't been in a position to ask for everything, even though we know some competitors are. We haven't asked for that at this point. We haven't decided about that.

Is it still possible to get a Delta-only deal in Europe?

Jahangir: There are no Delta-only deals.

How is the U.S.-U.K. market performing?

Davies: April was a difficult month, but overall for the year so far it has been moderate growth. U.S. companies are driving performance right now. Cabin choice is broadly the same mix as last year.

Is there overcapacity?

Jahangir: There has been an overall increase in capacity on transatlantic routes in 2014. A lot of it is Middle Eastern carriers being very aggressive, but underlying demand is strong, so although there are more seats out there than last year, it is not impacting us at the moment.

Is higher demand affecting price?

Davies: Yields are holding up.

Last month, your two airlines announced that Virgin will take over one of Delta's three daily London Heathrow-Atlanta flights, and Delta will take over one of Virgin's double-daily Heathrow-Los Angeles flights, starting Oct. 26. What was the thinking behind that move?

Davies: It's a metal swap. In any given market, passengers tend to gravitate toward their home carrier. By Virgin taking on a slot to Atlanta, it means more U.K. customers will be interested in access with Delta beyond Atlanta.