July 27, 2017
Virgin, Delta, AirFrance-KLM Announce Huge TransAtlantic Joint Venture
Delta, Air France-KLM, and Virgin Atlantic just announced the formation of a four-way joint venture. Delta is purchasing a 10% stake in SkyTeam partner Air France-KLM for 375m Euro while Air France-KLM will purchase a 31% stake in Virgin Atlantic for 220 million GBP. Delta will retain its existing 49% stake in Virgin. That makes founder Richard Branson’s Virgin Group a minority stockholder with just 20% of the new venture. I’m somewhat surprised that Branson agreed to sell his majority ownership in the company, given his opposition to Alaska Airline’s takeover of Virgin America last year. Branson said the following in a statement this morning:
“I want to be certain that all the necessary building blocks are in place for Virgin Atlantic to continue to prosper and grow for the next 50 years. The airline industry has consolidated over Virgin Atlantic’s lifetime and it’s now our turn to put ourselves at the heart of an important alliance, to create a stronger customer champion and build an airline which provides great opportunities for our team around the world. With these three partners in place and with me – and one day, the wider Branson family – still very much involved, we have the foundations to make sure this is so.”
Why should you care about this new joint venture? On the plus side, it’ll make transatlantic travel much more convenient for flyers. The joint venture (which indirectly includes Alitalia as Delta is a part owner) will offer a whopping 300 daily transatlantic flights. Passengers will be able to earn and redeem miles as well as book connecting flights across the five member airlines. On the other hand, the joint venture will reduce competition in the transatlantic market, which will likely translate into higher prices.
That being said, the biggest loser in this story may be British Airways. It’s being squeezed on the low-end of the market by budget airlines like Norwegian and WOW Air, while giving up market share at the high end of the market due to its obsession with cost cutting. The new joint venture will likely be better equipped to take more of the premium market from British. Given that Air France-KLM and Delta are all members of the SkyTeam alliance, do you think Virgin Atlantic will be the next airline to join? It would sure make earning SkyTeam elite status easier.