Delta And Virgin Atlantic Get JV Approval For Lucrative New York-London Market

by Trefis Team
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    Quick Take
  • On Monday, Delta received U.S. DoT approval for its joint venture with Virgin Atlantic that covers non-stop air travel between North America and the U.K..
  • Through the slots controlled by Virgin Atlantic at London’s busy Heathrow international airport, Delta aims to bolster its share of the attractive corporate travel market between New York and London.
  • In all, the Delta-Virgin Atlantic JV will increase Delta’s international presence and likely provide some upside to its margins due to an increase in the share of corporate travelers.

Delta Air Lines (NYSE:DAL) on Monday, September 23, received approval from the U.S. Department of Transportation (DoT) for its joint venture with Virgin Atlantic Airways on routes connecting North America and the U.K. [1] This approval paves the way for Delta to expand its share of the lucrative New York-London market and thereby further grow to its top line and margins.

Earlier in June, Delta and Virgin Atlantic received approval from the U.S. Department of Justice and EU Commission for this alliance. Delta made way for this trans-Atlantic joint venture last December when it purchased Singapore Airlines’ 49% equity stake in Virgin Atlantic Airways for $360 million. [2]

This final approval from the DoT allows Delta and Virgin Atlantic to jointly price, market and schedule their non-stop flights between North America and the U.K. The carriers announced that beginning March 30, 2014, they will together operate a peak of 32 daily non-stop flights between North America and the U.K., including 7 daily non-stop flights between New York JFK and London Heathrow. [1]

See our complete analysis of Delta here

Higher Share On The New York-London Route Will Lift Top Line And Margins

In their regulatory filings, Delta and Virgin Atlantic submitted that 60% of slots at the busy Heathrow International airport are occupied by British Airways and its joint venture partners, most notably its trans-Atlantic joint venture partner American Airlines. [1] The airlines contended that their partnership increased competition in the trans-Atlantic air travel market between North America and the U.K. by reducing the hold of British Airways-American Airlines alliance.

For Delta, this joint venture with Virgin Atlantic is crucial as it allows Delta to occupy a significant share of the corporate travel market between New York and London without having to independently obtain slots at Heathrow. Virgin Atlantic through its control of a significant number of slots at Heathrow will allow the Delta-Virgin Atlantic venture to occupy around 36% of the New York-London air travel market. This partnership will thus occupy second position after British Airways-American alliance, which controls nearly 50% of the New York-London market. [3]

The air travel market between New York and London is highly sought after as it consists of a high share of business travelers who lift margins and yields for airlines through their higher fares. Through this joint venture, Delta’s premium customers will have access to Virgin’s state-of-the-art lounge at Heathrow airport and Virgin’s premium customers will have access to Delta’s premium lounge at New York. The partnership will thus allow Delta and Virgin to offer corporate customers premium-level lounge services at both New York JFK and London Heathrow (without having to independently invest in them at both airports) increasing the attractiveness of their offering for corporate customers.

The Delta-Virgin joint venture also features a reciprocal frequent flyer program through which customers of both airlines will have an expanded service network to earn and burn miles. This will help both Delta and Virgin Atlantic gain new customers in their frequent flyer programs as well as retain existing ones.

Delta’s International Footprint Adds Value To Its Business Model

In all, this significant expansion in the trans-Atlantic market expands Delta’s international footprint, which apart from independent passenger flight service is characterized by alliances. Delta already has a similar joint venture with Air France-KLM and Alitalia that allows joint pricing, scheduling and networking on routes connecting North America and Europe. With the addition of Delta-Virgin Atlantic JV, however, Delta will have to coordinate between its two trans-Atlantic JVs.

In addition, Delta has a JV with Virgin Australia that covers trans-Pacific routes between North America and Australia-New Zealand. Delta is also a member of SkyTeam global airline alliance that allows partner airlines to expand their service networks and thus create revenue opportunities through code sharing and reciprocal frequent flyer programs. Overall, these international partnerships bring tremendous value to Delta’s business model.

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Notes:
  1. Delta and Virgin Atlantic welcome US Department of transportation decision to grant antitrust immunity, September 23 2013, news.delta.com [] [] []
  2. DELTA AND VIRGIN ATLANTIC TO FORM STRATEGIC ALLIANCE, December 11 2012, www.delta.com []
  3. Delta stake in Virgin Atlantic makes headway, June 20 2013, online.wsj.com []
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