Air France-KLM, Delta, & Virgin Atlantic’s Joint-Venture Plans

Air France-KLM, Delta and Virgin Atlantic have set out their plans to combine their respective transatlantic joint-ventures.

London Air Travel » Virgin Atlantic » Air France-KLM, Delta, & Virgin Atlantic’s Joint-Venture Plans

KLM, Air France, Delta, Virgin Atlantic Tailfins (Image Credit: Delta Air Lines)
KLM, Air France, Delta, Virgin Atlantic Tailfins (Image Credit: Delta Air Lines)

Air France-KLM, Delta and Virgin Atlantic have this week sought regulatory approval from the Department of Transportation in the United States to combine their respective transatlantic joint-ventures.

The documents they have submitted as part of this process give a flavour of what we can expect when the combined joint-venture takes effect.

Delta and Virgin Atlantic have operated a joint-venture between the UK and USA since 2013 and wish to combine this with Delta’s joint-venture with Air France-KLM. Delta owns 49% of Virgin Atlantic. When the joint-venture completes, Air France KLM will acquire a stake in Virgin Atlantic from Virgin Group, making Delta the single largest shareholder.

Headline Changes

– The airlines have expressed a desire to co-locate at London Heathrow. Given Virgin Atlantic’s significant investment at Terminal 3, this would most likely mean Air France and KLM moving from Terminal 4 to 3.

– Virgin Atlantic will codeshare on Air France and KLM flights from UK airports to their respective hubs in Paris Charles de Gaulle and Amsterdam.

– Virgin Atlantic will also codeshare on Air France and KLM flights around the world, thus offering significantly more booking options to Virgin Atlantic passengers.

– Virgin Atlantic will retain its own frequent flyer programme, but with earning and redemption opportunities on Air France and KLM flights.

In practice, this is likely to be rolled out progressively and codeshares may only be available for certain routings, eg when connecting to/from certain destinations covered by the joint-venture.

Competing Against American Airlines and British Airways

A clear theme is a desire/need for Virgin Atlantic and Delta to be a stronger competitor against BA and Oneworld at London Heathrow and in the UK market, particularly for corporate customers and frequent flyers.

The combined joint-venture sees it itself as a much stronger competitor in UK regional airports such as Manchester and Glasgow where it can offer both direct flights to the US and connections via Amsterdam and Paris Charles de Gaulle.

Air France and KLM can also compensate for Virgin’s relatively weak non-US network where it can offer codeshares to a very large number of worldwide destinations. Indeed, Air France and KLM serve very many destinations in Africa and Asia that are not served by BA.

As Virgin Atlantic reported a loss in 2017, achieving higher margin corporate revenue and cost savings from merging back office functions will be critical to its future.

There is a degree of irony in this submission in that BA and KLM did once explore a merger. This was arguably one of the greatest missed opportunities in aviation. The plan for co-operation between Virgin and Air France-KLM was very much that could have been explored between BA and KLM. It will be interesting to see how American Airlines and BA respond, both at Heathrow and at UK regional airports.

To save you reading the document, here are some select quotes:

Reciprocal codesharing between Virgin Atlantic, Air France and KLM:

Creating financial incentives for expanded codesharing will allow Air France and KLM to place their codes on Virgin Atlantic’s flights beyond London to points in Africa (e.g., Johannesburg, Lagos), and India (e.g., New Delhi), providing additional routing options for transatlantic passengers traveling to/from the United States. Virgin Atlantic will have many more similar codesharing options on the large Air France and KLM networks based in Paris and Amsterdam, respectively. Given the significant presence of Air France and KLM in the regional UK markets outside of London, this expanded cooperation will also provide UK travelers with many more online options for choosing and combining routings on Delta/Virgin Atlantic-operated direct flights in the transatlantic and/or connecting options via Air France’s and KLM’s European hubs.

An improved frequent flyer and corporate customer proposition:

Thus, despite the attractive service patterns that the Delta/Virgin Atlantic JV is now able to offer in the London transatlantic markets, that JV alone is far less capable than British Airways/American of offering corporate and agency customers a compelling service alternative in the United Kingdom in markets outside the transatlantic, and so the Delta/Virgin Atlantic JV on its own has been unable to offer a compelling “360-degree” service alternative to British Airways/American. Similarly, Virgin Atlantic’s limited footprint in Europe means that its frequent flyer loyalty program is less attractive to European customers because they have fewer options for using their frequent flier mileage within Europe. This, in turn, reduces the ability of the Delta/Virgin Atlantic JV to put real competitive pressure on British Airways/American Airlines in the transatlantic for those UK-based corporate and agency customers who require a more comprehensive network offering and for customers who desire a broader euro-centric loyalty program.

The creation of metal neutrality between Air France and KLM, on the one hand, and Virgin Atlantic, on the other, with the Amended JVA will help solve both of these problems and therefore improve competition for those customers by allowing the Parties together to offer the more comprehensive network and loyalty program offerings they demand. As reflected in Figure 7 below, Air France and KLM have significant presence in the regional UK markets. Combining that complementary regional UK presence with the attractive Delta/Virgin Atlantic transatlantic service significantly improves the value proposition the Amended JVA Partners can offer UK customers:

Moreover, when combined with the many European and global connections possible over the large KLM and Air France hubs in Amsterdam and Paris, respectively, the joint venture will be able to offer a much more credible competitive alternative to corporate and agency customers in the UK and a greatly improved loyalty program under the Virgin Atlantic brand to individuals in the UK.

Possible co-location at London Heathrow:

Similarly, the Amended JVA will create new incentives for the Parties to further co- locate their personnel and facilities. For example, at LHR, Virgin Atlantic and Delta are located in T3 for check-in, but Air France and KLM are located in T4.

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