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Delta Air Lines and
Virgin Atlantic on Jan. 1 officially launched a joint venture through which they
are sharing revenues, aligning corporate sales, coordinating
networks and planning schedules between the United States and United Kingdom. Announced in December 2012 along with Delta's deal to acquire a 49 percent stake in
Virgin Atlantic, the JV fills a significant gap
in Delta's network for corporate travelers by expanding London Heathrow access.
The partnership also represents a fortified competitor to the dominant American
Airlines-British Airways joint venture on U.S.-U.K. services. Among
upcoming milestones, Delta in April will begin operating from Virgin's home at
London Heathrow Terminal 3 for flights to New York JFK, Boston and Seattle. The
carriers also are harmonizing services for a joint schedule. "From a financial and commercial
perspective, our interests are completely aligned across the
transatlantic," Delta president Ed Bastian said in an interview this week
with BTN executive editor Jay Boehmer.
An edited transcript follows.
What kind of traction has the joint venture had with corporate clients since you received antitrust immunity?
We're out in the market with quite a number of accounts. The accounts were coming to us in large numbers before we could even talk to them on a combined basis. There was so much market interest in the arrangement. We needed to wait until we had ATI before we could effectively start negotiating. We're in with a number of accounts, actively working on that now. Any deals that are coming, and there are deals that are in negotiation, are fair game. Most of our deals tend to be one- to two-year deals, so we have quite a lot of ground to cover. There are also a number of accounts where Virgin did not have a corporate deal at all, with some of these big financial services institutions. The ability to bring them in to some of our existing offerings is also powerful.
How long before the joint venture is running full-tilt?
I would say by the end of the year we should be at that point. We'll have the most important flights—which would be for us particularly Boston and JFK—in Heathrow collocated with them. We'll have a chance to show Heathrow that we do have the capacity to move the other flights over [to Terminal 3] as well. We'll be in the marketplace with a joint offering this year in a meaningful way, and we've got a lot of negotiations coming up over the year where we're going to be able to bring the power of the two brands together to enhance our position. It will also be the first chance to see how the financial sharing arrangement works. Any time you go into a joint venture, there are some assumptions and expectations that both parties have. We'd like to make certain they prove out to each other. I think it's going to be a very good first year, and this time next year I think we'll be a lot smarter about it, too.
Delta has reported corporate gains in New York, particularly in the banking sector. Tell me how the joint venture positions you with those clients.
We've been making a lot of strides in the last five years in the corporate space. Much of it was the reason we did the Northwest deal in the first place, so we could have an offering on a global basis to attract our most important accounts. The one piece of the puzzle for us was a meaningful presence at Heathrow. You know how important Heathrow is to business travelers. It was only five years ago that we were granted access to even fly into Heathrow. We were restricted because there wasn't Open Skies [between the United States and Europe]. To think we went from a position where there was no access at Heathrow at all in 2008 to now having together with Virgin the number two position at the airport, it's really great for our position with accounts that need Heathrow—financial services, the banking industry, the technology companies, the media/entertainment space. If you can't offer not just service to Heathrow but a time pattern that works that gives you full-day coverage, you're hamstrung in your negotiating ability with corporates.
What are the opportunities to align the Virgin partnership with the Air France-KLM joint venture?
That's going to be up to Air France-KLM and Virgin to decide how they want to tap into the new opportunities together. It's clear from London to the U.S. that the two main parties are going to be Delta and Virgin, but as it relates to more broadly between Europe and the U.S. and then the U.K. going eastbound and southbound to other parts of the globe, I think that's where that partnership can be explored. Those discussions are going to be coming in the future. There's nothing tangible at the present time because the focus is where the money is, which is across the Atlantic. I'd say in the future you will see opportunities for those companies to work together as well.
Looking at another equity partner, Gol, does Open Skies with Brazil next year open up an ATI relationship?
There is that possibility. We do have a lot of work going on with them currently, because Gol today is predominately a local Brazilian airline and we don't need ATI to work effectively because we're not competitors in that space. They've got limited service to the U.S. through their Santo Domingo operation, and so a piece of that is carved out. But most of the work we're doing is to see how we can bring better service offerings from Delta down to Brazil, where we can blanket Brazil using the Gol network in-country and try to help Gol to bring their product offerings and their service offerings up to a little more of a U.S. business standard, so that as we bring our business travelers and high-value travelers through Brazil, the Gol product is consistent with the Delta offering.
In general, how is corporate travel demand looking as we start the year?
Our corporate sales activities continue to run strong year-on-year revenue gains. The numbers were in the high single digits for 2013, which is a significant number for us. When we look at the month of December, our unit revenues were up 10 percent on a year-over-year basis for the month, which is very significant. As we look out into 2014, all indications are it should be another strong year.
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