Delta, Virgin Atlantic File For Antitrust Immunity

Delta Air Lines and Virgin Atlantic on Monday submitted to the U.S. Department of Transportation a request for antitrust immunity. The request covers the Delta-Virgin transatlantic joint venture announced in December, as well as a "multilateral coordination agreement" that also includes pre-existing Delta partners Air France, KLM and Alitalia.

The carriers claimed their new agreements will provide "a meaningful competitive alternative to the alliance between American Airlines and British Airways that presently dominates the U.S.-U.K. market."

Should antitrust immunity be granted, Delta and Virgin intend to jointly plan schedules through a "metal-neutral codeshare network covering all flights within and between North America and the U.K." and establish a unified sales force that would engage corporations and travel agencies.

"Virgin Atlantic's strong position for London point-of-sale traffic will greatly enhance Delta's penetration into the London business market, and Delta's strong position in the United States for U.S. point-of-sale traffic will have the same effect on Virgin Atlantic," according to the carriers' application. "Delta's presence and brand recognition in the U.K. is low, which impedes its ability to compete effectively for U.K. point-of-sale customers, particularly for premium customers and corporate accounts for which a strong point-of-sales presence is especially important, and for sales through direct channels, which are dependent on brand recognition."

The carriers indicated that each of their sales and pricing teams would coordinate "with respect to establishing discount policies for corporate and agency accounts. Joint sales and marketing coordination, which will maximize local point-of-sales expertise and allow the parties to present a single sales face to customers."

They added that "corporate discounts and agency commissions are typically offered on a global basis, and in order to compete most effectively against AA/BA for corporate and agency customers the joint applicants need to be able to offer a single, comprehensive package of services to their customers including both transatlantic joint ventures." The airlines added that "the lack of credible scale and service on key business routes undermines Delta's global product offering and has led to disappointing results on key transatlantic routes that compete with AA/BA."

The carriers also noted that "corporate accounts have repeatedly told Delta its service frequencies and time-of-day coverage on NYC-London Heathrow are inadequate and have refused to commit business to Delta proportionate to its seat share on the route. Market share data confirms this point, showing that Delta captures only 7 percent of premium traffic on the route, well below its 10 percent capacity share. The best way Delta can reverse its chronic underperformance against AA/BA at New York and at Boston is to offer more frequencies and better time-of-day coverage. Given the slot constraints at London Heathrow and the other challenges of the market, the only way to accomplish that is for Delta and Virgin Atlantic to join forces."

Plugging 'Immunity Gaps' 

Meanwhile, in order to "avoid potential immunity gaps," Delta and Virgin simultaneously requested antirust immunity for a five-way agreement that would include Delta's SkyTeam alliance partners Air France, KLM and Alitalia.

"Delta will be coordinating with Virgin Atlantic on North America-U.K. routes that involve a nonstop U.S.-U.K. segment. Delta will also be coordinating with Air France/KLM/Alitalia on North America-U.K. routes that involve connections via continental Europe, e.g. in Amsterdam or Paris," according to the request. "Overarching antitrust immunity is needed to avoid the 'horseshoe' risk that coordination within one set of joint-venture partners will be imputed to the other."

As such, the five-way coordination agreement covers such areas as "joint or coordinated sales and marketing initiatives and activities, including joint contracting with corporate and agency accounts, coordination with respect to corporate discounts and agency commissions and incentives, and establishment of delegated sales responsibility based on home market representation."