After several weeks of speculation Delta, Singapore Airlines and Virgin Atlantic have come to an agreement which will see Delta acquire a 49% ownership stake in Virgin Atlantic for $360mm. Delta’s stake will come from Singapore Airlines; Virgin Group, headed by Sir Richard Branson, will retain their current 51% share and control of the company. The Virgin brand and operating certificate will remain intact. The deal is still dependent on approval from regulators on both sides of the Atlantic. The airlines expect the deal to close by the end of 2013.
Delta and Virgin Atlantic also intend to establish a joint venture operation for trans-Atlantic operations. The joint venture will not, at least for now, include other SkyTeam partners. It will, however include:
- A fully integrated joint venture that will operate on a "metal neutral" basis with both airlines sharing the costs and revenues from all joint venture flights.
- A combined trans-Atlantic network between the United Kingdom and North America with 31 peak-day round-trip flights.
- Enhanced benefits for customers including cooperation on services between New York and London, with a combined total of nine daily round-trip flights from London-Heathrow to John F. Kennedy International Airport and Newark Liberty International Airport.
- Reciprocal frequent flyer benefits.
- Shared access to Delta Sky Club and Virgin Atlantic Clubhouse airport lounges for elite passengers.
The joint venture will definitely give the combined carriers a leg up in the ultra-competitive London market. That said, the combined lift between London and New York City and Newark still doesn’t begin to reach the frequencies at British Airways/American Airlines offer. The 23 total flights daily between the USA and Heathrow will place Delta/Virgin in a solid second place, ahead of United’s 16 but well behind BA/AA’s nearly 40 daily operations.
From a passenger perspective the overall product should be very competitive in both economy and business class. Both Delta and Virgin Atlantic currently offer flat beds for all passengers in their business class cabins. For economy class the AVOD systems on both carriers should provide sufficient entertainment to distract the passengers from their tighter seating quarters. Virgin Atlantic has a proper premium economy cabin which Delta does not offer; there may be some work to reconcile that difference at some point. On the ground the Virgin Clubhouse lounges are some of the nicest business class operations, particularly in New York and London. Delta’s SkyClubs are not at the same level but in shared markets customers will have the benefit of access to both.
Delta has been looking for a way to get at more slots into Heathrow. They picked up a couple when British Airways was forced to divest them following their acquisition of bmi but that wasn’t enough to significantly change their operations. The partnership with Virgin Atlantic will open up access to many more slots eventually. And the price point was quite reasonable. Of course, Virgin Atlantic has been losing money in recent quarters so it might become a more expensive investment over time, but at least initially it looks like a positive opportunity for both carriers.
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